NZD/USD: Could the kiwi make a comeback?

<p>The NZD/USD has been falling steadily ever since the RBNZ delivered its last policy statement at the start of this month. The New Zealand central […]</p>

The NZD/USD has been falling steadily ever since the RBNZ delivered its last policy statement at the start of this month. The New Zealand central bank said it will remain on hold until after the new government is formed in September, but that the next rate change will be an increase. The market interpreted this as a dovish move and consequently the NZD dropped. But at a record low 1.75%, interest rates in New Zealand are one of the highest among the developed economies. With equity markets surging to new unchartered territories in the US and multi-year highs in Europe, sentiment appears to be pretty much bullish. The positivity stemming from the stock markets could weigh on the perceived safe-haven US dollar and underpin risk-sensitive currencies such as the Australian and New Zealand dollars. Trouble is, the US dollar has acted anything but a safe-haven asset: it has rallied alongside the equity markets, mainly due to the fact that central banks outside of the US have remained dovish. But the intermarket relationships can and will break and I wouldn’t be surprised if the twain went their separate ways.

As for the NZD/USD, this currency pair could make a dramatic comeback if a key support level at 0.7130/5 holds firm. Otherwise it may drop towards 0.70 again before deciding on is next move. The 0.7130/5 level marks the convergence of the low from last week and the rising 200-day moving average. Given the importance of these technical indicators, a bounce of some sort appears likely. But there is a potential that the kiwi could find significant support here, before surging higher. Anything is possible. However for the buyers to come back in force, they will need a couple of things to go in their way. First, the abovementioned 0.7130/5 level needs to hold as support on a daily closing basis. Second, resistance at 0.7240 then needs to break. If these conditions are met, we could see a nasty short-squeeze rally.

Conversely, if the NZD/USD closes below the 0.7130/5 level then 0.7000 could be the next bearish target. However there are a couple of other potential support levels on the way to 0.7000, including the 61.8% Fibonacci retracement at 0.7060.

17.02.21 nzdusd

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (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.

For further details see our full non-independent research disclaimer and quarterly summary.