New Zealand Dollar Talking Points
NZD/USD appears to be stuck in a narrow range after defending the 20201 low (0.7096), but the pullback from the February high (0.7465) may turn out to be an exhaustion in the broader trend rather than a change in behavior as the Federal Reserve is expected to retain the current path for monetary policy.
NZD/USD Rate Rebound Faces Fed Rate Decision, New Zealand GDP Report
NZD/USD pares the rebound from the monthly low (0.7099) as it struggles to push back above the 50-Day SMA (0.7214), and it remains to be seen if the Federal Reserve interest rate decision on March 17 will influence currency markets as the central bank is slated to update the Summary of Economic Projections (SEP).
Fresh forecasts from Fed officials may overshadow New Zealand’s Gross Domestic Product (GDP) report if the central bank alters the forward guidance for monetary, but more of the same from Chairman Jerome Powell and Co. may keep key market trends in place as the Reserve Bank of New Zealand (RBNZ) insists that the “current monetary policy settings were appropriate to achieve its inflation and employment remit.”
The Mission Concluding Statement from the International Monetary Fund (IMF) staff struck a similar tone as the group states that “while no additional stimulus is needed at the current juncture, fiscal and monetary support should not be withdrawn prematurely given the still-uneven recovery and continued high uncertainty,” and the RBNZ may continue to endorse a wait-and-see approach at its next meeting on April 14 as the central bank carries out the Funding for Lending Programme (FLP) unveiled at its last meeting in 2020.
In turn, key market themes may continue to influence NZD/USD as the US Dollar still reflects an inverse relationship with investor confidence, and the tilt in retail sentiment also looks poised to persist as traders have been net-short since October.
The IG Client Sentiment report shows only 37.82% of traders are net-long NZD/USD, with the ratio of traders short to long standing at 1.64 to 1.
The number of traders net-long is 19.83% higher than yesterday and 9.88% higher from last week, while the number of traders net-short is 12.29% higher than yesterday and 15.70% higher from last week. The rise in net-long position comes as NZD/USD defends the 20201 low (0.7096), but the rise in net-short interest has fueled the crowding behavior as 45.02% of traders were net-long the pair last week.
With that said, NZD/USD may continue to consolidate ahead of the key event risks on tap for later this week as it struggles to push back above the 50-Day SMA (0.7214), but the decline from the February high (0.7465) may turn out to be a correction in the broader trend rather than a change in NZD/USD behavior like the pullback from the January high (0.7315).
NZD/USD Rate Daily Chart
Source: Trading View
- Keep in mind, NZD/USD cleared the June 2018 high (0.7060) in December as it climbed to fresh yearly highs throughout the month, with the Relative Strength Index (RSI) pushing into overbought territory during the same period as the oscillator established an upward trend in the second half of 2020.
- NZD/USD took out the 2020 high (0.7241) during the first week of January to come up against the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion), with the bullish price action pushing the RSI into overbought territory.
- However, the move above 70 in the RSI was short lived as the indicator failed to retain the upward trend from 2020, with the oscillator indicating a textbook sell signal during the first week of January as it quickly fell back from overbought territory.
- A similar development occurred toward the end of February as NZD/USD pulled back from a fresh yearly high (0.7465), but the exchange rate has slipped below the 50-Day SMA (0.7214) for the first time since November to come up against the January low (0.7096).
- It seems as though the Fibonacci overlap around 0.7070 (61.8% expansion) to 0.7110 (38.2% expansion) will continue to act as support as NZD/USD defends the 2021 low (0.7096), but lack of momentum to hold above the 50-Day SMA (0.7214) may continue to generate range bound conditions.
- Need a break/close above the 0.7260 (78.6% expansion) region to bring the overlap around 0.7320 (23.6% expansion) to 0.7350 (23.6% expansion) back on the radar, with the next area of interest coming in around 0.7450 (38.2% expansion) to 0.7500 (100% expansion).
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.