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NZD/USD currency pair broke the support line of 0.5150. I’m following up on a post NZD/USD on the Edge that was written prior to this break, and after the huge interest cut of 1.5%.

It came after the  Building Consents squeezed by 6%. The fall of the New Zealand dollar was also helped by remarks by RBNZ Governor  Alan Bollard, who hinted quite loudly that more rate cuts are expected (emphasis mine):

 

There was still room to cut the OCR more, Dr Bollard said today in a speech to the Canterbury Employers’ Chamber of Commerce.

Dr Bollard reiterated that the New Zealand economy was well placed with a well-capitalised banking system and a central bank prepared to take further remedial interventions.

“Lest there be any doubt, the tool box is by no means empty,” he said.

After making this break between Thursday and Friday, the kiwi didn’t tumble down immediately, but just “settled down” under the support line. The closing price for the week (and the month) was at 0.5090. It can be seen in the graph:

nzd-usd-broke-support-january-2009

In the upcoming week, NZD/USD is expected to dive lower. The next support line is at 0.5000 – which is psychological like – 2 New Zealand dollars for one American dollar. Breaking this line will be very dramatic for the kiwi.

Apart from being a psychological line, the 0.5 mark has been a support line for the kiwi in December 1993. At the beginning of the decade, NZD/USD was under 0.5, and reached the bottom of 0.39 at October 2000. Will it go that deep?

I’ll keep on following this interesting currency pair. Analysis is both technical and fundamental.

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