NZD/USD: Oversold conditions suggest 0.5795 is likely out of reach – UOB Group

Scope for New Zealand Dollar (NZD) to weaken further; oversold conditions suggest 0.5795 is unlikely to come under threat. In the longer run, sharp drop seems excessive; for a continued decline, NZD must first break and hold below 0.5800, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

NZD sharp drop seems excessive

24-HOUR VIEW: "While we indicated yesterday that NZD 'could potentially drop below 0.5880,' we were of the view that 'the major support at 0.5855 is unlikely to come into view.' Our call for a weaker NZD was correct, but we did not expect the sharp selloff that sent it to a low of 0.5816. Although there is scope for NZD to weaken further, deeply oversold conditions suggest the major support at 0.5795 is unlikely to come under threat. Note that there is a minor support at 0.5810. On the upside, resistance levels are at 0.5845 and 0.5860."

1-3 WEEKS VIEW: "Last Friday (15 Aug, spot at 0.5920), we indicated that NZD 'has likely entered a 0.5880/0.5980 consolidation phase.' Yesterday (20 Aug, spot at 0.5895), we pointed out that 'downward momentum is starting to build, and the risk of NZD breaking below 0.5880 is increasing.' We added, 'A break below 0.5880 will shift the focus to 0.5855.' However, NZD broke both support levels with ease as it plunged to a low of 0.5816. While the sharp drop seems excessive, there is no sign of stabilisation. That said, for a continued decline, NZD must first break and hold below 0.5800. The likelihood of NZD breaking clearly below 0.5800 will remain intact as long as 0.5895 (‘strong resistance’ level was at 0.5945 yesterday) is not breached. Looking ahead, the next level to watch below 0.5800 is another significant support at 0.5765."