Currency Pair of the Week: NZD/USD

There are many factors which could affect the direction of NZD/USD this week.

New Zealand

New Zealand recently has been reporting zero, or nearly zero, new coronavirus cases daily!  The country also moved its coronavirus alert down to a level 1 from a level 2.   That is amazing when you look at the rate of increase compared to some other countries around the world, such as the United States. Note that the border remains closed to non-New Zealand residents.  NZD/USD has taken this news as a signal to go bid as traders feel the New Zealand economy will recover quicker than the US economy.  We will find out what the Royal Bank of New Zealand (RBNZ) is thinking on Wednesday!

The RBNZ is expected to leave rates unchanged at 0.25%, which is where rates have been since they lowered them from 1% on March 15th.  At the May 13th meeting, the RBNZ also raised the amount in their Quantitative Easing Program from NZD 33 billion to NZD 60 billion.  Economic data has been better than expected recently, for the most part, and traders will be watching the press conference afterwards for signs of cautious optimism from the central bank.  But given it has only been a month and a half since the last RBNZ meeting, the central bank will most likely retain a dovish tone as Governor Orr recently said that negative rates are still on the table.

The US Dollar, on the other hand, has been moving lower.  The US Federal Reserve was extremely dovish at their last meeting.  The Fed said they would continue buying Treasuries and MBS at least at the current pace and most member of the FOMC saw rates near unchanged through 2022.  In addition, the Fed announced that they would begin buying corporate bonds in addition to ETFs.

Technically, on the daily chart of NZD/USD, we can see that price bounced off their March 19th lows near .5469 and began trading in a sideways channel between .5843 and .6176 until the pair finally broke out  on May 26th.  The pair traded aggressively higher through the 200 Day Moving Average and ran into horizontal resistance at .6593 on June 9th.  NZD/USD had been consolidating in a pennant formation until TODAY when the pair broke higher above the downward sloping trendline.  The target for the breakout from the pennant formation is near .7100.  The consolidation also allowed for the RSI to unwind into neutral territory.   

Source: Tradingview, City Index

On a 240-minute timeframe, we get a better look at the price break out of the pennant formation.   There is some short-term horizontal resistance near .6518, but the strong resistance is at the top of the triangle near .6584.  Support comes in at the downward sloping trendline near .6430, where buyers will be waiting.  Below there,  support is at the bottom trendline of the triangle near .6380  and then the 38.2 Fibonacci retracement level from the May 15th low to the June 9th high near .6330.

Source: Tradingview, City Index

There are many factors which could affect the direction of NZD/USD this week. These factors include the number of new coronavirus cases in New Zealand and the US, the RBNZ meeting on Wednesday, and the technical picture after the price break out of the pennant formation.  Keep an eye on the RBNZ press conference as well for clues as to whether price will continue to target from the breakout of the pennant.


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