KIWI DOLLAR TALKING POINTS AND ANALYSIS
- Fed peak + RBNZ hawkishness supportive of NZD.
- All eyes shift to the US for the rest of the trading week.
- Technical signals point to downside to come.
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NEW ZEALAND DOLLAR FUNDAMENTAL BACKDROP
The New Zealand dollar rallied behind a weaker US dollar and the Reserve Bank of New Zealand (RBNZ) interest rate decision earlier this morning. Although the central bank kept rates on hold (see economic calendar below), a rather hawkish and authoritative tone was set by the RBNZ Governor Orr. Some key statements to consider are shown below:
“We’re nervous that inflation has been outside the band for so long.”
“The 10-year inflation expectation is creeping higher.”
“We’re concerned that longer-term inflation expectations are creeping up.”
“Global rates do matter to us, we are very tuned into that outlook.”
“We are saying that rates need to be this high for some time to come, banks should listen.”
“We are not bound by policy meeting dates and can act on shocks if needed.”
It is clear that money markets do not anticipate any additional rate hikes to come in 2024 but data dependency will be a key driver. If inflation data remains on its upward trajectory, the RBNZ may well take a decisive decision to tighten monetary policy once more.
RBNZ INTEREST RATE PROBABILITIES
The USD fell sharply yesterday after one of the Fed’s most prominent hawks, Fed’s Williams shifted to a less aggressive tone. Mr. Williams hinted at the possibility of no further rate hikes and rate cuts should inflation continue to fall. Implied Fed funds futures showed a dovish repricing of roughly 25bps of cumulative rate cuts by December 2024 with US Treasury yields extending their decline across the curve. Later today, US GDP, additional Fed speakers and the Fed’s beige book will come into focus ahead of tomorrow crucial core PCE print (Fed’s preferred measure of inflation).
ECONOMIC CALENDAR (GMT +02:00)
Source: DailyFX economic calendar
NZD/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Daily NZD/USD price action shows the recent upside pairing back off the 0.6200 psychological resistance handle as the pair moves into overbought territory on the Relative Strength Index (RSI). Traditionally, markets will be looking for a pullback, particularly if the current candle closes with a long upper wick but if a further dovish bias is enforced, there may be room for more NZD strength. Short-term directional bias heavily depends on USD moves but from a technical analysis standpoint, I favor some NZD weakness.
Key resistance levels:
- Trendline resistance
Key support levels:
- 200-day moving average (blue)
IG CLIENT SENTIMENT DATA: BULLISH
IGCS shows retail traders are currently LONG on AUD/USD, with 49% of traders currently holding long positions.
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