NZD/USD Technicals – RBNZ Rate Hike Expectation Increases Future Downside Risk

Kiwi Dollar traded slightly lower today, in line with other risk-correlated assets that were depressed on the get go today following weaker Chinese economic numbers over the weekend compounded by Japanese GDP numbers that have been revised lower today. Given all these bearish factors it is rather amazing that NZD/USD shed only 20 pips when most other risk assets have sunk 1% and more. Certainly, the stronger Q4 Manufacturing numbers for New Zealand released at 5:45 am SGT (5:45 pm EDT) helped to buffer against the broad bearish pressure in the market, but credit still must be given to the underlying bullish strength as initial reaction to the Manufacturing numbers were muted, suggesting that the bullish impact from the news is rather limited.

Hourly Chart


Nonetheless, it should still be noted that the strong inherent bullish strength did not manage to prevent prices from breaking the rising Channel Bottom, which exposes 0.845. Should price breaks 0.845, the likelihood of further bearish momentum increases and we could see bullish momentum unravelling fully. Stochastic indicator gave us a bullish cycle signal this morning but that signal is under threat as Stoch curve is now pointing lower and has crossed the Signal line. Therefore, possibility of bearish extension from here cannot be ignored. On the other hand, even in the event that 0.845 support holds, prices will need to climb back above Channel Bottom and preferably above 0.847 in order to restore back bullish. Failure to do so and bearish risk remain as weak risk sentiment may drag prices down once again.

Daily Chart


Bearish pressure is even greater on the Daily Chart where prices appear to be topping ahead of the 0.855 resistance. That being said, there is no immediate bearish risk as price will need to break the rising trendline and preferably trade below 0.84 round figure before stronger bearish conviction can take root. Stochastic indicator agrees – even though Stoch curve is below 80.0 level and Signal line not far behind, Stoch curve should ideally push below 70.0 “support” to demonstrate strong bearish momentum.

With RBNZ rate decision coming up on Thursday (Wednesday night 4pm EDT), it is unlikely traders will short aggressively right here right now as most of the market expects RBNZ to hike rates this time round – a notion that is seconded even by New Zealand Prime Minster himself this morning. However, this does mean that there is actually higher downside risk moving forward should RBNZ fail to raise rates. Even in the event that RBNZ push rates higher there is a chance that bullish follow-through will be limited as market has already priced in a huge chunk of this eventuality, resulting in a higher possibility of “buy the rumor, sell the news” playing out.

More Links:
AUD/USD – Eases Away from Resistance Level at 0.91
EUR/USD – Surges to Two Year High above 1.39
GBP/USD – Resistance Level at 1.68 Looms Large

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu