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NZD/USD has been in a strong uptrend for the most part of the year but the gains could encounter a ceiling, even after breaking the first barrier at the .8500 major psychological level. As you can see on the weekly time frame, NZD/USD is close to the three-year high of .8844 reached in Q2 2011.

The pair has been supported by rate hike expectations from the RBNZ (Reserve Bank of New Zealand), as the central bank already tightened monetary policy in their latest rate decision. On the other hand, the US economy is still facing plenty of challenges with its weaker than expected jobs growth and slow inflationary pressures.

Data from New Zealand has shown progress so far while the latest FOMC meeting minutes revealed that several Fed officials are still pessimistic about the U.S. economy’s prospects. This could weigh on the dollar in the near term and push NZD/USD closer to the previous peak.

Profit-taking my ensue at this point, which might lead to a sharp correction for NZD/USD at least until the broken .8500 resistance, which might now act as support. Take note that New Zealand has experienced a sharp drop in dairy exports, which might then weigh on overall economic growth and lead the RBNZ to be less upbeat.

In addition, the RBNZ hasn’t been very happy with the strong appreciation of the Kiwi so a bit of jawboning might take place in their next rate decision. After all, a higher value of local currency makes the country’s products more expensive in the international trade market, thereby weighing on affordability and demand. New Zealand is a country that relies heavily on its commodity and dairy exports so the central bank might be keen to boost demand for shipments.

With that, the pair might turn upon reaching the .8840 to .8850 minor psychological resistance and head back to the .8500 region if the RBNZ sounds less hawkish in their upcoming rate decision. The US dollar could draw support from a rebound in economic data, as hiring did pick up after all and might lead to a recovery in consumer spending.

A strong convincing break past the .8840 levels could lead to more gains for the New Zealand dollar, as traders rush to take advantage of the positive carry between the Kiwi and Greenback. Holding on positions for more than a day allows traders to cash in on the positive interest rate differential.

Note: Chart is attached as Post Image.