NZD/USD fails to move past key resistance on strong retail sales

The New Zealand dollar failed to rally past key resistance levels on Monday despite a report showing retail sales advancing at a much stronger rate than expected.

Retail sales in New Zealand rose 1.6% on an inflation-adjusted basis in the third quarter from the previous quarter, a far stronger advance than the 0.5% expected increase. Retail sales were up 4.5% year-over-year, much more than the second quarter rise of 2.9%.

The Reserve Bank of New Zealand (RBNZ) kept its official interest rate steady at the last rate setting meeting two weeks ago, after surprising the market with a big half percentage point cut in August. The retail sales numbers bolster the case for at least a neutral bias for New Zealand official interest rates and supported Kiwi on a day the greenback was generally higher against other currencies. RBNZ’s official rate is at 1%, a record low.

NZD/USD traded above its 100-hour moving average just after the retail sales release but remained below critical resistance, which is at the 100-day moving average around $0.6422. Kiwi was little changed on the day in late New York trade, quoted around $0.6420 after several attempts to break through that key $0.6422 resistance failed.

Election polls

Sterling had its best day in nearly two weeks, advancing on news of an election poll showing Boris Johnson’s Conservatives continuing to hold on to a strong lead ahead of the early December election.

But in a widely covered speech, former Prime Minister Tony Blair warned that there will still exist considerable uncertainty even if Johnson gains a strong majority. Blair correctly pointed out that Johnson will have to again negotiate with the EU since the last agreement he reached expired with parliament failing to back the it.

Nevertheless, analysts and investors remain overwhelmingly Sterling bulls, with big bank research report after report forecasting that a deal will be reached and for sterling to be strong in 2020. Swiss banking giant UBS, for example, says it expects a big Conservative victory and that the pound will trade as high as $1.32 in the first quarter.

It’s important to note that when sentiment is overwhelmingly one-sided as it is now in sterling, such a development is in fact considered a contrary indicator, revealing as it does a high degree of complacency toward risk levels.

GBP/USD traded near the $1.29 level in late New York trade, up nearly half a percent on the day.

Holding support

The euro managed to defend key support levels around $1.10 against the US dollar, aided somewhat by a German sentiment survey that showed businesses expect growth in the EU’s largest economy to pick up in the fourth quarter, after avoiding recession by the narrowest of margins in the Q3.

EUR/USD was trading around $1.1015 in late New York trade, little changed on the day.