NZD/USD to drift lower in its current consolidation mode

The Reserve Bank of New Zealand (RBNZ) is on the market’s radar with another policy meeting coming up on Wednesday, May 26. There is a strong likelihood that macro forecasts would be getting favourable updates. Taper talk is watched given the RBNZ has been slowing down on its LSAP bond purchases of late, but it could well be a supply adjustment. Technically, NZD remains in consolidation with momentum gauges staying muted. This keeps an inverse-head-and-shoulders pattern still in play, where declines would find support unless the 200-DMA at 0.6993 and the prior 0.6946 craters, Benjamin Wong, Strategist at DBS Bank, briefs.

It might be premature for the RBNZ to engage in taper talk – which underpins NZD

“The official cash rate would be left at 0.25%, and the large-scale asset purchases (LSAP) programme would be the one to watch. The NZ Institute of Economic Research (NZIER) has pointed out the slowing down in bond purchases under the LSAP since its introduction in late March 2020; around half of the originally intended NZD100b worth of bonds have been bought. In some sense, the LSAP slowdown also reflects lower bond issuances, hence, a supply matter altogether. Together with likely stronger macro forecasts (especially on the employment front and Consumer Price Index forecasts), the market would be on alert for taper talk.”

“NZD is caught up in a range bind, given the market has yet to either validate a still-in-brew inverse-head-and-shoulders pattern or for that matter, invalidate the pattern. Neither has the market gone the other way and taken out the support of the 200-day moving average (DMA) of 0.6992, thus providing a range consolidation. Prices are mostly settling around the interim support of the 55-DMA at 0.7145.”

“NZD is likely to see interim resistance unfold in the 0.7270-0.7305 price threshold. That makes the secondary high (lower vs the prior 0.7465 high), with 0.7352 the 76.4% Fibonacci retracement of 0.7465-0.6946 range (late February peak vs early April lows) just behind.”

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