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In the month of October, seasonally-adjusted month-over-month retail sales remained unchanged even as longer-term quarterly sentiment continued to remain buoyant. Suppressing any further improvement in the monthly figure were declines in consumables including clothing and fuel. Supermarket sales were particularly weak as consumption fell by 1.1%, according to Statistics New Zealand. Additionally, spending in clothing stores fell by 6.7% as fuel demand declined mildly by 1.9%.

Australia Soaring
The dismal figure is in stark contrast to soaring Australian retail sales numbers and places some doubt on the pace of future rate increases by the Reserve Bank of New Zealand in the near term. Australian retail sales rose by the most in eight months as retailers benefited from higher consumer confidence, according to Bloomberg News. Retail sales in the month of November gained a healthy 1.4% as released by the Bureau of Statistics. The rather rosy sector expansion has led many in the market to speculate another round of rate hikes is in the cards for the Australian economy as Governor Glenn Stevens becomes increasingly concerned with inflationary pressures.

A Look Ahead ...
However, optimism remains high for the upcoming November report as skyrocketing consumer confidence may have more than offset declines in manufacturing and construction. With an economic recovery on the horizon, New Zealand consumption is estimated to have grown by a 0.6% clip in the month over month comparison, according to analyst estimates.

The report couples with recent upward revisions in the October report. Although previously unchanged, previous month estimates were revised higher to show a robust 0.3% growth in the month - the fourth straight gain for the report. Supportive of a higher retail number are household lending figures showing that consumer confidence may be elevated enough to spark a retail spending recovery. Subsequently, an optimistic print would support further speculation of higher overall economic growth in the quarter, but also increase the likelihood that Reserve Bank of New Zealand Governor Alan Bollard would be willing to increase interest rates in the country in the coming quarter. (Learn more about central banks in Get To Know The Major Central Banks.)

Figure 1: NZD/USD

The Technical Picture
An uptick in the retail sales figure for the New Zealand economy would coincide with potential support as the New Zealand / U.S. Dollar currency pair hovers around the 0.7040 psychological handle. The pair bounced off of this resistance four times in the last three days. This formidable barrier could change from support to resistance if it breaks through; with short term bearish pressure. Subsequently, any upside potential would be capped as longer term bearish sentiment is currently weighing down the currency pair.

For related information on supports, check out Support and Resistance Reversals.

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