NZD/USD rangebound but bulls eyeing test of recent 0.7084 highs

NZD/USD has been choppy/rangebound on Wednesday, slipping from Wednesday Asia session highs at 0.7084 to lows in the 0.7030s. In recent trade, however, the pair has picked up and recovered back to around 0.7060. On the day, NZD/USD currently trades flat.

Kiwi eyeing another run at multi-year highs

Wednesday’s Asia session saw NZD/USD hit fresh multi-year highs of just under 0.7080. Kiwi bulls appear to be keen to maintain the upside momentum. The NZD is primed to be one of the best performing G10 currencies in 2020, or so the logic goes, given expectations for rising commodity prices and a shift towards better global trade and travel conditions as the world is vaccinated against Covid-19 and the Biden administration normalised international trading relations.

However, Rabobank note that RBNZ dovishness might be being under-priced by markets at present; RBNZ Governor Orr estimated that “without recent monetary policy actions… the NZ trade-weighted exchange rate would have risen by around 7%”, which the bank sees as a clear indication that the RBNZ “recognise(s) the importance of the exchange rate in achieving its inflation goals”. The bank continues that the “RBNZ has appeared in the past to use pre-emptive policy action to accentuate the market impact of policy decisions and this year it has been vocal about the threat of using negative interest rates”.

Markets seem to think that recent vaccine news undermines the risk that the RBNZ will go negative with interest rates in 2021. However, if the bank does surprise with dovishness in the coming months, this could take some of the wind out of the RBNZ’s sails.

NZD/USD continues to respect bullish trend channel

NZD/USD continues to advance north within a bullish trend channel that has been in play since early November; the upwards trendline acting as resistance links the 11, 12, 24 and 30 November highs, while the upwards trendline acting as support links the 13, 19, 23 and 30 November lows. Indeed, this uptrend support was well respected on Wednesday.

Should NZD/USD continue to the upside within this trend channel, as seems the most likely course of action given that this does represent the path of least resistance, the pair should be in with a shout of breaking to fresh multi-year highs above 0.7084 soon. Little by way of significant resistance lays to the upside ahead of the 0.7100 level, so this would be the next area to target and above that, the 21 March 2018 low at just above 0.7150.

To the downside NZD/USD’s most notable area of support is back below 0.7000, the December 2018 high at 0.6970 and the Q1 2019 highs at 0.6940. Below that, there is the pair’s 21-day moving average which has recently moved above 0.6900.

NZD/USD four hour chart