NZD/USD Review: Bull breakout failed, yield differential hit 3.5-month low

  • Kiwi's sharp drop in Asia has poured cold water over the optimism generated by the pair's break above the four-month-long falling trendline earlier this week.
  • The NZ-US 10-year yield spread hit a 3.5-month low today, signaling the NZD could be in for a deeper drop.

The NZD took a beating in Asia after the New Zealand August business confidence reading printed at a decade low.

At press time, the NZD/USD pair is trading at 0.6655, having hit a high of 0.6717 in early Asia. The ANZ business confidence fell to -50.3 in August and the details of the report revealed that 5 percent of firms surveyed by ANZ intended to reduce investment.

Further, a net 50.3 percent of survey respondents expected economic conditions to deteriorate in the year ahead. The gloomy outlook forced investors to venture out of the NZD.

As a result, the NZD/USD fell back below key descending trendline sloping downwards from the April 13 high and July 26 high, neutralizing the bullish outlook put forward by the upside break of the trendline witnessed on Tuesday.

More importantly, the spread between the US 10-year treasury yield and the New Zealand 10-year government bond yield dropped to -29 basis points today, the lowest level since May 15.

So, it seems safe to say that could suffer deeper losses in the next few days, especially if the rising trendline is breached on a daily closing basis.

NZD/USD Technical Levels

Support: 0.6657 (38.2% Fib R of 0.6544/0.6727), 0.6620 (Aug. 24 low), 0.66 (psychological level)

Resistance: 0.6675 (10-day MA), 0.6717 (Asian session high), 0.6742 (50-day MA)

NZD/USD daily chart

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