Following a more dovish Bank of Canada’s announcement, NZD/CAD climbed higher, striking a 17-month High towards the end of last week.
3 Hourly Chart
Price has since pulled back approximately 50 pips, with 14 SMA on the 3 hourly chart providing some support around 0.842. Stochastic readings appear to be heading lower with the previous reading peaked shortly after the 17-month high was pronounced. It is also pertinent to note that an Inverted Hammer/ Shooting Star candle is formed with the body just below the upper Bollinger band, which should be interpreted as a bearish signal. However this bearish signal is filtered by the strong uptrend we are experiencing now, and should be taken with caution. Prices may find support by the lower band if price break lower from current levels.
Weekly chart shows that price has not really cleared the weekly resistance, with a longer term correction towards 0.795 still on the cards. Stochastic reading from the weekly chart is also potential peaking as we enter the “Overbought” region. This setup seems to go in line with the fundamentals as NZD rally looks to be heavily extended given the conditions of its current economy – record unemployment rate and slowing growth, with exporters complaining about high NZD hurting. On the other hand, the selling-off of CAD post dovish BOC could be an overreaction as BOC simply stated their intention to push off tightening policies for the time being – which is very different from embarking on easing policies. As such, should Reserve Bank of New Zealand choose to go down the route as its Australian counterpart, we could see a large correction in NZD/CAD, keeping the sideways band of 0.77 – 0.84 intact.
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