Kiwi dollar has been trading higher since Asian session, rebounding off the 0.845 support level and as since climbed above the 0.847 resistance and perhaps more importantly last Friday’s closing level – climbing back into black for this week. What is impressive is that prices managed to push higher despite a bearish Asian session which saw Nikkei 225 falling 2.59% and Hang Seng Index shedding 1.65%. Hence, it is clear that sentiment in NZD/USD is bullish right now, which will provide buffer against “risk off” appetite in European and US session later.
This strong bullish sentiment is not surprising with RBNZ rate decision less than 12 hours away. The New Zealand central bank is expected to hike rates tomorrow, and hence one would be hard pressed to find any serious sellers in the meantime. However, long term bullish prospect of NZD/USD is doubtful given that risk appetite is still broadly bearish. Hence, it is still possible that bears may simply return tomorrow after the rate decision. Furthermore, it is clear that market has already priced in a rate hike scenario already, and this increases downside risks should RBNZ fail to hike rates as expected. Even if RBNZ does increase rates by 25 basis points, market may be nonplussed, limiting further bullish follow-through or even start to sell lower on a “buy the rumor sell the news” behavior.
Daily Chart also hints of downside pressure as we could have a potential top in our hands if 0.850 resistance remain intact despite a rate hike. Stochastic indicator agrees as well with readings within the overbought region, with a bearish cycle favoured moving forward. Nonetheless, a bullish scenario is also possible as Stoch curve has just only recently rebuffed a bearish cycle signal, once again suggesting that bullish sentiment is strong. However this could also be explained once again by the fact that bears are not suicidal enough to sell with RBNZ rate decision coming up soon. As such, directional traders should wait for RBNZ decision and the resulting reaction to play out fully before committing, as that will be a better indication of where we will be heading in the next few days or a couple of weeks compared to right now.
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