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FX Strategists at UOB Group suggested that further downside in NZD/USD looks unlikely, allowing for some consolidation in the near term instead.

Key Quotes

24-hour view: “Expectation for NZD to “trade sideways within a 0.6285/0.6320 range” was clearly incorrect as NZD reversed an initial drop to 0.6270 and soared to 0.6340 (the range of 70 pips is the largest one-day range since the shock 50bps cut by RBNZ early last month). The strong rebound has room to extend further but overbought conditions could ‘limit’ gains to 0.6375 (minor resistance is at 0.6355). Support is at 0.6310 followed by 0.6290. The 0.6270 low is deemed as a short-term bottom and is not expected to come into the picture”.

Next 1-3 weeks: “Despite the recent weakness in NZD, we have cautioned since last Friday (30 Aug, spot at 0.6313) that “only a NY close below 0.6300 would indicate that NZD is ready to tackle 0.6260″. NZD dropped briefly to 0.6270 yesterday (03 Sep) before surging to end the day on a strong note (0.6339, +0.45%). While the 0.6355 ‘key resistance’ is still intact, the price action is enough to indicate that the negative phase in NZD that started early last month has run its course. That said, it is premature to expect a major reversal. For now, we view the current price action as part of a consolidation phase and expect NZD to trade sideways. However, the firm underlying tone suggests the immediate risk is for NZD to test the top of the expected 0.6290/0.6410 sideway trading range first”.