NZD/USD extends its rally to hit the highest levels since December 2018, as the bulls rejoice a big beat on New Zealand’s Retail Sales data. The NZ retail consumer spending jumped by 28% QoQ in Q3 vs. 20% expected. Meanwhile, successful vaccine trials – led risk-on mood also adds to the strength in the Kiwi.

Domestic data on retail sales blew past all expectations, quashing the risk of further policy easing and underlining the currency’s yield attraction. The gains came as data showed real retail sales in New Zealand boomed by a record 28% in the third quarter, recovering strongly from an historic 14.6% drop the previous quarter when a strict corona virus lockdown crippled consumption. That was far above market expectations and suggested upside risk to the gross domestic product (GDP) report for the third quarter due next month.

“Today’s result is another tick in that column, highlighting the resilience in household spending appetites,” said Satish Ranchhod, a senior economist at Westpac. “This also highlights the effectiveness in monetary and fiscal stimulus in supporting demand through what has been a trying time for the economy.”

New Zealand’s better than expected economic recovery thus far in 2020 has left the RBNZ struggling to justify threats to take rates negative in 2021, hence markets priced this out last week. This is a theme that likely continues to work in NZD/USD’s favour, given the increasingly dovish tone of the FOMC last week on the near-term outlook for the US economy increasing the chance of some central bank divergence over the coming months.

Moreover, with the incoming Biden administration already signalling intent to create a more stable, favourable global trade environment, export-dependent New Zealand is likely to be one of the main beneficiaries of this. These better global trading conditions are still some way off; the world needs to wait for Biden to arrive in office in January and recover from Covid-19 pandemic. But the latter half of 2021 ought to be a good year for the kiwi.

NZD/USD 4 Hour Chart:

Support: 0.6911 (S1), 0.6884 (S2), 0.6865 (S3).

Resistance: 0.6958 (R1), 0.6977 (R2), 0.7004 (R3).

All the catalysts favors New Zealand dollar against US Dollar, we expect a bullish trend for NZD/USD.