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The NZD is leading the G10 pack against the USD after the Reserve Bank of New Zealand (RBNZ) delivered as expected overnight. The kiwi has made a clean break to a fresh trading range, but a crowded technical landscape ahead could slow further progress. That said, the NZD continues to trade at a significant discount to its short-term drivers, as Ned Rumpeltin, European Head of FX Strategy at TD Securities, notes.

The RBNZ plays it With a straight bat

“The MPC is not going to jump the gun here. Policymakers have acknowledged the positives, such as the Trans-Tasman reopening and better outcomes in other major economies. However, they also highlighted weaker domestic data while refraining from making a call on recent changes to housing by the government. The Bank reiterated that the medium-term growth outlook remains the same as the February Monetary Policy Statement.”

“NZD/USD made a clean break above resistance at the 0.7070 level in the aftermath of the policy decision. The pair has since gravitated toward the next natural attractor around the 0.7100/25 zone. This area had served as a fairly effective floor for much of the first quarter this year. It will be interesting to see if spot can hold onto these gains as the move looks a bit overdone relative to the strength of its catalyst.”  

“We note the NZD continues to trade at a significant discount to its short-term drivers. This has been the case for some time and the gap has started to narrow since its extremes in March. That said, plenty of room remains before we would start to lean the other way on a valuation basis. Looking higher, potential price action faces an area of considerable congestion on the charts from the first few months of the year. In the absence of a clear positive catalyst, the kiwi could face a fairly tough slog from current levels.”  

“With an eye on our end-Q2 forecast of 0.72 for NZD/USD, we think further progress to the upside may be more of a grind at this stage.”

 

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