NZD/USD eyes 50% fibo retracement and then weekly R3

The tone of Powell’s presser offered notably  more dovish  rhetoric for  both interest rate policy and the balance sheet. As a result, analysts at TD Securities are now shifting their expectation for balance sheet runoff to conclude in June, with one more rate hike this year (and this cycle) to 2.75% in September.

On the back of such sentiment, the kiwi was a top performer and took full advantage of the weakness in the greenback.  However, Greg Gibbs,  Founder at  Amplifying Global FX Capital Pty Ltd, explained that these moves may be limited by the still substantial global uncertainty over US trade policy, surprisingly weak economic data in Europe and China, tensions surrounding US legal action against Huawei, tech sector headwinds, Brexit, and a more toxic US political environment:

“However, we would not be surprised to see a period of weaker USD trading unfold, especially if the US administration and China see progress in trade talks this week.”

NZ jobs data

“We expect to see a small bounce in the unemployment rate from 3.9% to 4.1% in Q4. Last quarter we saw a large fall, likely reflecting some noise, amidst genuine tightening in the labour market. But while the labour market is in a strong position, we may have seen the best this cycle has to offer,” analysts at ANZ Bank explained adding, “Wage inflation is expected to have firmed to 2.1% y/y, reflecting  previous  tightening in the labour market, the higher minimum wage, and a boost from last year’s nurses’ pay settlement. But underlying wage inflation is expected to continue to improve only gradually.

NZD/USD levels

• Support: 0.6850
• Resistance: 0.7030

The price burst through the 200-D SMA and was supported by the  25th Nov pivotal low and confluence of the 21-D SMA as a hard support line, yesterday. Overnight, the pair continued in style, tearing down the resistance pivots points and RSI still have room to go. 0.7030 is a prior fractal swing low as the target   – weekly R3. However, the 50% fibo retracement of the 2018  decline is the first barrier around 0.6930 ahead of weekly R2 located at 0.6942.