New Zealand Producer Price Index. Impact of the news on the NZD/USD currency pair
Data on national currency inflation are always taken into account when drawing up long-term forecasts for changes in
exchange rates.
These are some of the indicators that make fundamental market analysis more effective.
Moreover, it does not matter which instrument you work with - dollar, euro or franc - inflation data always has a great influence on the movement of the chart.
Since the inflation indicator almost without error helps the trader to predict the possible movement of a currency pair, draw conclusions about the economy and add up the overall picture as a whole.
The New Zealand Producer Price Index is a leading indicator that can accurately show the level of inflation.
To calculate it, data is taken on manufacturers’ costs for materials, semi-finished products, and components.
Therefore, this news has a very high forward effect, since with such simple calculations of the difference in prices for raw materials, this index can be obtained before the release of official data from the central bank.
Using the index in trading is very simple. If the data comes out higher than the previous month, this is a good sign for a decrease in the inflation rate, a strengthening of the economy and, as a result, an increase in the NZD exchange rate.
If the indicator of the published news is lower than predicted or previous, this is a sign of a deterioration in the country’s economy, increased inflation and, finally, a weakening of the NZD. Therefore, by tracking this news there is an excellent chance to make money on sharp price jumps.
Every practicing trader should first be interested in how the price behaves after the release of data on the New Zealand Producer Price Index, whether the price often does not pay attention to the release of data, whether there are false signals, the number of points passed by the price on average after the publication of data and how much The schedule is stormy.
The most popular currency pair for trading on New Zealand news is NZD/USD, because in combination with the dollar, NZD reacts well to news, and also has a small spread. In order to understand the real market reaction to the news, I suggest looking at historical price behavior for the last four indicators.
On November 20, 2014, negative data on the Purchasing Price Index were released, which amounted to -1.5 percent. Most analysts were inclined to increase from -1 percent to 0.3 percent. However, a fact is a fact, so based on negative data, we can assume that the chart of the NZD/USD currency pair will rapidly go down. How the price actually behaved can be seen in the picture below:
Judging by the chart, you can see that the market simply ignored this news and entered a wide flat. However, a few hours later the price went sideways and covered a distance of 30 points. If we talk about the effect of the news, we can clearly say that it lasted for 8 hours, and the market did not react at all for the first 4 hours.
On February 19, 2015, the PPI data released turned out to be lower than experts predicted and amounted to -0.4 percent against the expected -0.2 percent. However, if you look at the previous figure, which was -1.5 percent, it becomes clear that the inflation rate has decreased.
Therefore, in response to this positive news, the chart of the NZD/USD currency pair should go up. A picture of what is happening can be seen in the image below:
The price successfully responded to the positive data and moved 30 points. The effect of the news lasted approximately 4 hours and 15 minutes. The news ended with almost one big candle, which covered the entire distance traveled.
On May 19, 2015, data was released that showed an increase in inflation. The majority was inclined that the fall would not exceed -0.7 percent, but in fact they received -1.1 percent versus -0.4 percent for the last quarter. This tells us about the weakening of the New Zealand economy, which should be reflected in the form of a fall in the chart of the NZD/USD currency pair. You can see the real reaction to the PPI in the image below:
The market reacted to the release of the data, so the price successfully moved 36 points towards the news. It is worth noting that the effect of the news lasted 4 hours, with the main price movement occurring in the first 15 minutes, after which a rollback occurred and the movement continued. The end of the news was marked by a strong price surge, which covered the entire distance traveled in one candle.
On August 19, 2015, the PPI indicator came out positive. If the previous value was at -1.1 percent, then the actual data was -0.3 percent. This tells us that the inflation rate is decreasing, so the chart of the NZD/USD currency pair should rise rapidly. How the price actually behaved can be seen in the picture below:
At the time the news was released, the price made a small jerk, after which it went into a prolonged sideways trend. At the end of the flat , the chart purposefully rushed up towards the news and passed 20 points. The effect of publishing the indicator lasted 8 hours.
Summing up, I would like to remind you that the news comes out after 24:00, so you shouldn’t expect a strong reaction at that time of day. Despite this, the PPI data influences the NZD/USD currency pair almost all night or at least 4 hours.
If we talk about the profitability of trading on this news, then if you traded with a stop order and a profit equal to the minimum distance traveled, then in four trades you would earn 20+20+20+20=80 points!
Since at the time of news release there are practically no real dollar players, the behavior of the price for the release of the indicator is quite predictable and without strong price spikes. We look at the news in the economic calendar http://time-forex.com/kalendar