NZDUSD rallies as home prices steady in December
The New Zealand dollar has been posting strong gains over the past few sessions as the Kiwi has now retraced most of the declines since late November, led by the Trump rally. The latest house price data added further support to the Kiwi which is now within reach of the critical resistance level at 0.7231.
The latest REINZ sales figures point to fairly steady conditions in the housing market over December
For the third month in a row, sales fell slightly in seasonally adjusted terms, while prices continued to edge higher, albeit at a slower pace than in the first half of 2016. These results are in line with our expectations for the latest round of loan-to-value ratio (LVR) restrictions, which were announced in July last year. The LVR restrictions limit the number of potential buyers, reducing turnover, but have little bearing on buyers’ willingness to pay.
Mortgage rates have been creeping higher since November, ending a fairly steady downward trend over the past couple of years. We think that this turnaround in borrowing costs could have a more meaningful impact on house prices than the LVR restrictions. In our most recent quarterly Economic Overview we revised down our house price growth forecast for next year to just 5%, compared to an estimated 14% rise over 2016.
How to trade binary
The 4-hour chart for NZDUSD shows the current bullish breakout occurring after the bullish flag pattern was formed. This pattern puts the minimum upside towards $0.7232 region which could be tested in the short term. However, there is risk of a pull back and we expect NZDUSD to retrace some of the gains back to $0.7135 which could offer a strong bounce to the upside.
Therefore, look to purchase daily CALL options near 0.7135 - 0.7150 support zone based on the bullish flag pattern for a 21:00 GMT expiry time. Further bullish momentum is likely to build up on NZDUSD in the near term as price will likely rally towards the resistance level of $0.7232.
Target price: 0.7135
Expiry: 21:00 GMT