NZD is the currency of choice in Asia, with rumours abound that big banks are buying up the commodity currency. NZDUSD is testing a critical psychological resistance zone around 0.8000, which coincides with the pair’s 25% retracement level from July’s high. A break here may instil kiwi bulls with more confidence.
However, a failure to push through this key resistance zone may see NZDUSD fall back to the base of its medium-term downward trend. In other words, if rejected around this level our short-term bias is lower for the pair. Nonetheless, our long-term bias remains higher, albeit only slightly.
The pair remains in a medium-term upward trend and may different technical indicators have turned bullish lately. Daily MACD suggests that momentum is to the upside and RSI remains in a similar upward trend to price.
Furthermore, we aren’t as convinced by the USD strength story that is supposed to be taking place right now. In fact, we think the weak inflation outlook in the US and some poor economic fundamentals (a lack of strong wage growth and inactivity at the ground level) are going to keep the Fed from raising interest rates until late next year, which is going to bring the carry trade back into play (the biggest threat to the carry at the moment appears to be volatility in the FX market).
In New Zealand, the outlook for rates also isn’t as hawkish as it once was. There isn’t as mush inflation pressure in NZ as we forecast at the beginning of the year and a generally downbeat global economy and a still expensive kiwi are keeping exports in check.
Source: FOREX.com
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