RBNZ’s financial stability report, retail sales data may stimulate NZD, speculate with SLF

The New Zealand dollar is good mood to bounce ahead of the Reserve Bank's financial stability report and retail sales data for Q1, as traders started inspecting anything that could add to the case for interest rate cuts.

The financial stability report may include new policy to tighten lending restrictions for Auckland property investors as the Reserve Bank tries to give demand and inflation a nudge while avoiding inflaming an already heated market for homes in New Zealand's largest city.

Real Estate Institute figures today showed the average house price in Auckland didn't shift between March and April to remain at $720,000, still about 18% up from the same month last year.

The RBNZ top official ruled out the possibility of a rate hike in the near future but said that a rate cut could only be necessary if demand began to weaken.

The kiwi traded at 73.59 US cents as at 5pm in Wellington, from 73.83 cents late yesterday, but up from an eight-week low of 73.30 US cents it touched overnight. The trade-weighted index fell to 76.16 from 76.45 yesterday. The New Zealand dollar was the best performers across the FX space in Asia.

Technical watch:(NZDUSD)

We traced out a positive convergence on RSI (14) in line with price curve, to substantiate this blue line crossover seen on fast stochastic exactly below 20 levels which would certainly indicate an oversold situation on daily chart. However, this has to be confirmed with the weekly chart. Even though we reckon a bullish standpoint on this pair, it is advisable to look in for better dips for cheaper entry points.

An eye on Derivatives Instruments:
Strategy: SLF (Synthetic Long Futures)

Correlating both above technical and fundamental stances we somehow perceive an early signs of trend reversal, so for risky active speculators we recommend buying Synthetic Long Futures.

The synthetic long futures strategy is used when the futures trader is bullish on the underlying futures but seeks an alternative to purchasing the futures outright.

It is constructed by buying ATM call option and selling an equal number of ATM put option of the same underlying futures and expiration month.

The Synthetic Long Futures are an options strategy used to replicate the returns of a long futures position.