NZD/USD rebounded higher, hitting 0.81 once more today following yesterday’s failure to do so. Looking at the extend of the decline that followed yesterday’s failure, we can clearly see that prices are fiercely offered around the 0.81 key level, which sparked panic selling towards 0.80 within 6 hours of tagging 0.81. However, the rebound from 0.80 is equally fierce, with prices pushing 80 pips hours in the same amount of time, finding support between 0.806 – 0.808 before early Asian hours pushed price beyond 0.81, which was ultimately rebuffed once again.
It is interesting that all these happened without any sort of fundamental spark. There wasn’t any NZ related news during the period when priced move down 100 pips and eventually more than 100 pips higher. Some may point to USD weakness as the reason for the rally – lead by weakening stock prices. But that is hardly a strong reason as USD actually weakened much more against other currencies on a D/D basis, with CHF, GBP, JPY and EUR beating NZD vis-a-vis USD. Looking at how price is currently using the Kumo underneath as support, it seems that current price action is purely running on a technical basis – which would explain the huge dip in NZD/USD during European hours despite little or no USD movement.
This would imply that we could see a rebound towards 0.81 as we approach US opening today once again, rebounding from Senkou Span A which price is currently at right now. There are good fundamental support as well, considering that Asian equities closed lower today, while European equities are currently trading lower. There is a good chance that US stocks will follow suit, which would mean weaker USD if yesterday’s correlation continue to be at work. On the other hand, even if price trades lower but straddle above the Senkou Span A, we could still see price being nudged higher around from 0.805 and potentially heading back towards 0.81 once again early next week.
Looking at the long-term chart, Stochastic readings continue to point higher, with current weekly candle trading entirely above the multi-year channel. Price should preferably break 0.81 this week in order for strong acceleration higher next week. Failure to break 0.81 may result in strong bearish reaction on Monday and perhaps for the rest of the week ala price action 2 weeks ago. Nonetheless, even if price fail to break 0.81, but trade above last week’s closing level, this would still be the 1st time price has managed to stay fully above the rising Channel, and therefore the threat of a strong pullback may not be as immediate as 2 weeks ago.
Fundamentally, it is interesting to see that swaps are pricing in a 84 bps rate hike within the next 12 months, while the same swaps are pricing no further rate cut for RBA, the first “neutral” outlook since 2011. This will surely drive up further bullish sentiment for the Oceania currencies, which suggest that we should be seeing higher NZD/USD moving forward provided that there isn’t any economic shocks within NZ economy. It is likely that Fed’s tapering action may result in stronger USD temporarily and hence lower NZD/USD, but long-term bullish outlook will remain by virtue of rate differentials.
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