NZD/USD: 0.6720 is a key downside target

• A broad rally in the USD overnight ensured that post-CPI NZD strength did not persist for long.
• The divergence between the RBNZ and the Fed underpins the dollar’s upside.

NZD/USD fell heavily on the back of a strong dollar, dropping from a shortlived high of 0.6841 and 0.6754 traded as the low. Currently, NZD/USD is consolidated in a quieter market on the Asian handover after a more fluid session than yesterday.

While the US session on Monday was tame, things kicked off for the pair in yesterday’s Asian shift on the back of inflation data when the pair rallied from 0.6774 to 0.6840. However, while CPI rose, it missed forecasts and was below the RBNZ’s target. The divergence between the RBNZ and the Fed underpins the dollar’s upside and left the double top in place in a short squeeze that fell short of the target up in the 0.66850s.

“A broad rally in the USD overnight ensured that post-CPI NZD strength did not persist for long. However, positioning remains the biggest near-term issue for the kiwi, and with data flow now not undershooting expectations to the same extent, the potential for a further squeeze higher in the NZD remains,” explained analysts at ANZ.

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NZD/USD levels

0.6720 is a key downside target and there is no divergence in the price and  RSI heading lower in the short and longer term, (weekly moving deeper towards oversold and hourly more to go below neutral levels). The 10-D SMA, (6790) and 21-D SMA, (6810) are key but closes below these open the case for further supply into the bearish channel. 0.6920, however, would put the bulls back in control and bulls can target the June highs.  The 200-month moving average resistance at 0.7007 is next key level.