NZD/USD: Bullish gap towards 50% Fibo following Trump/Xi truce

• NZD/USD has opened in Asia on the bid following a decisive breakthrough between Beijing and Washington over a trade dispute that had been escalating in recent times, making for an anxious setting in financial and commodity markets.
• NZD/USD is currently  trading at 0.6901 from a high of 0.6922 and up from a low of 0.6897.

The trade war angst was weighing on risk sentiment and high beta currencies such as NZD in 2018. Combined with slower domestic and global growth forecasts, the pair had been gradually deteriorating this year from as high as the 0.7430s.  

However, we are witnessing a comeback this winter where the pair has travelled from a low of 0.6424 on healthy economic developments in New Zealand and a lower tone from the Fed following a series of rate hikes that have lifted the Feds funding rate close to their neutral target. A  significant development has thus occurred. It is highly likely that that Fed will pause in its path of interest rate normalisation in the foreseeable future, leaving  scope for a tighter spread between the US and other nation’s interest rate spreads and thus underpins the upside between the two currencies.  

Meanwhile, as analysts at ANZ explained, a temporary trade truce has been achieved between Chiian and the US, and that should see risk supported early this week with the NZD testing topside levels:

“However, time will tell how enduring the optimism proves to be. There are already very different official takes on what was achieved at the meeting. The White House says negotiations on several thorny issues need to be completed in the next 90 days or tariffs will still go to 25%: “forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture”. The official CNTV and Xinhua news agency’s release did not mention the fact that the agreement not to raise tariffs was for only 90 days, nor the US demands structural change in China’s trade practices.” The analysts at ANZ also point out, that like the truce itself, it is a worthwhile asking whether this NZD strength will be temporary too as it is getting to a point where it will no doubt be raising concerns at the RBNZ.

NZD/USD levels

• Support 0.6850  
• Resistance 0.6890

The bird is now making a foundation above the 38.2% retracement Fibo (at 0.6810) of the 2018 sell-off from 0.7441 highs to 0.6427 2018 lows which the Kiwi can continue higher and look for a test of 50% fibo 0.6922 target. Above it, birds can head towards the 61.8% Fibo at 0.7049. However, below the 38.2% base, bears will have eyes on the 21-D SMA, now at 0.6663 with the confluence of the 23.6% Fibo.