The New Zealand dollar continues to see a lot of negative pressure, as we are looking at a massive amount of interest rate differential, and sits on a massive support level.
NZD/USD
The New Zealand dollar has fallen rather significantly over the last couple of weeks, and we find it at a major area between 0.56 and 0.55. Coming into the picture for support, if we were to break down below 0.55, that is a massive hole in the New Zealand dollar just waiting to happen. In the meantime, though, when I look at this, I’m looking for some type of bounce that I could sell into. I definitely don’t want to buy the New Zealand dollar because the RBNZ is so dovish at the moment.
The interest rate differential is still large enough to drive a truck through
The Federal Reserve is expected to raise rates sometime this year, probably December if you believe the FedWatch tool. But when you jump at this area, then you would be looking at the 0.57 level as an area that shows signs of exhaustion and probably start shorting. Anything above there, then maybe you step back.
I do not want to buy the Kiwi dollar despite the fact that I do think it probably needs to bounce here. The interest rate differential is still large enough to drive a truck through, and the expectations of the two central banks couldn’t be any more divergent if they tried.
Unlike Australia, New Zealand is exposed to Asia in the wrong way. It’s not supplying anything other than basically agricultural. It’s not where you have a certain commodity skyrocketing in price, like copper, which helps Australia.
So really, at this point in time, and the fact that the Kiwis are more likely than not going to loosen monetary policy before it’s all said and done, I’m just looking for some type of sell-off in the U.S. dollar causing this to bounce, and then I’ll take advantage of value to start shorting at the first signs of exhaustion. But a breakdown below 0.55, you can’t argue with—that’s a major breach.
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Christopher Lewis is a technical analyst and market commentator at DailyForex with more than two decades of trading experience in Forex and other leveraged markets. Based in Columbus, Ohio, he specializes in chart-based analysis of major currency pairs, stock indices, commodities, and energy markets, focusing on clear support and resistance levels, trend structure, and risk management. Christopher produces daily written and video analysis for traders who rely on technical setups to navigate volatile market conditions
As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire
