NZD/USD shoots-up to test a 50% mean reversion resistance area

  • US politics is in the driving seat and risk appetite steers the Kiwi. 
  • The bird moves up to test a 50% mean reversion and confluence area. 
  • NZD/USD bulls need to consider the price action flow into supply territory and of the DXY.

NZD/USD is currently trading at 0.6649 between 0.6607 and 0.6657, higher by some 0.55% at the time of writing following a test of 93.50s in the DXY.

The US dollar has potentially completed the 4th wave in a bullish 5-wave pattern which has helped the dollar bloc inch higher into supply territories. More on this below. 

Meanwhile, it was a turbulent day on both European and US markets with still come time to go until the bell on Wall Street. 

US equity markets edged up on news of a potential new fiscal stimulus package and mixed economic data, but the headlines have been contradictory which makes for great uncertainty still.

''The Kiwi can benefit from an optimistic mood in risk markets. Ironically this optimism stems in part from better US data and hopes that a fiscal deal can be nutted out there – hardly what you’d traditionally call a negative, but the USD is softer nonetheless,'' analysts at ANZ Bank explained. 

US data reinforces the need for additional fiscal stimulus

In the US data, and ahead of the much anticipated Nonfarm Payrolls at the end of the week, Initial Weekly Jobless Claims for the week ended Sept. 26 were reported at 837,000 with the previous week's level revised up to 873,000.

The headline was expected as 850,000. The four-week moving average was 867,250, down from the upwardly revised prior week's level of 879,000 which is slightly encouraging. 

In other data, the IHS Markit final September manufacturing Purchasing Managers' Index headline was 53.2, marking the highest since early 2019 yet missing expectations."US manufacturers rounded off a solid quarter which should see the sector rebound strongly from the steep second-quarter downturn," IHS Markit economist Chris Williamson said.

 "Encouragingly, companies reported an [marked] upturn in demand for plant and machinery, which suggests firms are increasing their investment spending again after expansion plans were put on hold during the spring. Similarly, fuller order books helped drive further job creation as firms continued to expand capacity."

Meanwhile, the core PCE deflator for the US was in line with expectations, rising 0.3% m/m in August. The July data was revised up which helped pushed annual core deflator rate to 1.6%.

 ''Overall, the data reinforces the need for additional fiscal stimulus to aid the economic recovery,'' analysts at ANZ argued. 

NZD OIS market is better bid

As for domestic updates, the analysts at ANZ are somewhat optimistic for the bird considering that the NZD OIS market is better bid ''as markets price out the chance of easing in February, and that’s likely contributing to some NZD strength,'' they said.

'The growing sense in markets that early deployment of the RBNZ’s planned FLP arguably buys more time to either delay an OCR cut or stop at 0% en route to a negative OCR. Still dovish, but less so.''

NZD/USD technical analysis 

The environment is bullish but the prospects for higher levels are only slight when considering the supply zones for which guard territories above the 0.67 figure. 

Failures here, at the 50% mean reversion resistance and the confluence of structure keeps the focus on the downside, especially considering the bullish prospects for the DXY:

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