Market News & Analysis
Currency Pair of the Week: NZD/USD
Joe Perry May 11, 2020 3:12 PM
The Reserve Bank of New Zealand (RBNZ) is set to meet on Wednesday to discuss interest rate policy. Although no change is expected, the focus will be whether or not they increase the size of their QE, and my how much. At the last meeting in March, there was talk they could double the size of QE to NZD 60 billion at this meeting. In addition, market participants will be watching the press conference to see if there is talk about the possibility to moving to negative interest rates. If the RBNZ continues with a dovish tone, the New Zealand Dollar could move lower.
On Tuesday, the US releases Inflation data. The headline inflation rate is expected to fall from -0.4% to -0.7%. The Core inflation rate is expected to fall to -0.2% from -0.1%. There has been speculation among economists and traders lately that the Fed may go to negative interest rates, something they don’t want to do. On Tuesday there are no less then 5 Fed members speaking throughout the day. In addition, Fed Chairman Powell is set to speak on Wednesday to the Peterson Institute for International Economics regarding the current US economy. It will be important to watch for any comments regarding negative rates.
The daily timeframe chart for NZD/USD is showing that price is currently in an ascending wedge formation. Traders will look for a break lower to confirm the wedge. The target for an ascending wedge is a full 100% retracement, which would put price below .5700. In addition to the ascending wedge, the pair opened the week just below horizontal resistance at .6193 and has been hovering near the 50% retracement level form the highs of December 31st, 2019 to the lows of March 19th, near .6110. Although there is still lots of time left in the day, NZD/USD is in the process of forming a bearish engulfing candle, which would point lower for the pair.
Source: Tradingview, City Index
Resistance above at the previously mentioned horizontal resistance level of .6193. Next level is the 61.8% Fibonacci retracement level and the upper trendline of the ascending wedge near.6260. Above there, price can run up to the March 9th highs near .6450. First support is at the bottom trendline of the ascending wedge near .6050. Below there, NZD/USD can fall all the way down to horizontal support near .5740. Final support is March 19th low at .5470.
NZD/USD traders will have all eyes on their respective central banks this week. The more dovish central bank will win the battle for a depreciation of their currency. However, the technical picture is showing a corrective formation, which indicates that the pair may be ready for a move lower!
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.