- NZD/USD has been started off the month on the downside with a bearish bias clearly engraved on the short, medium and long-term charts.
- Everything fundamental points to deeper declines. There is also plenty of downside to go within the Bollinger bands and RSI.
- Support 0.6550 Resistance 0.6670. On the flip side, above the 21-D SMA, the weekly 10 SMA is still the first key target to the upside
Everything fundamental points to deeper declines and it appears that the recent high that was an important level to someone out there in August and at the start of July has served its purpose and sellers are right back in the driving seat.
Bearish fundamentals in play
Firstly, the greenback has taken up its safe-haven role again and the high betas are subject to a rough ride while EM contagion risks remain a concern, no matter how realistic they might be or how contained they should remain. The trade war angst has, so far, been a positive input to the US dollar. At the same time, the Fed is on its tightening path regardless of those impending risks for emerging markets – the medium-term risks will be when the shortfall liquidity offshore in the greenback starts to really kick in – psychologically, that is already working its way into the market and is on the lips of economists. Domestically, the RBNZ is on hold and there is very little reason to be long anything Kiwi while the carry is now elsewhere. In fact, one tends to now shift their focus to the dovish side in respect to the RBNZ’s OCR. The recent data flow has been weak and the market has moved to price in around 50% chance of an OCR cut by mid next year.
“We suspect that the RBNZ may well be willing to front-foot a response to a slowing before seeing it manifest in official GDP data, but it would nonetheless need to be convinced that the slowdown is real and relatively broad-based, and that extra monetary policy support is therefore warranted. As such, there is a range of developments we – and the RBNZ – will be watching closely over the next couple of months,” analysts at ANZ explained. For the near term, the analysts explained that month-end rebalancing, trade tensions and emerging market fears all dominated to see the weekend with kiwi testing support levels – “These factors are all likely to linger early this week, keeping the NZD trading defensively. Key US data will also be a focus.”
NZD/USD levels
While bumping along to the downside along its Bollinger band and well below the 21-W SMA, and now two full days of trade below the 21-D SMA, the 0.66 handle is fragile and support is located at deeper within the steepening bear trend at 0.6550. The August 2015 lows at 0.6235 are a key objective. There is plenty of downside to go within the Bollinger bands and RSI.
On the flip side, above the 21-D SMA, the weekly 10 SMA is still the first key target to the upside – located at 0.6709 and if broken, it will be the first time the price has traded above it since mid-April earlier this year. While otherwise, the bull’s target in the medium term should be the 200-month moving average resistance at 0.7019.
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