NZD / USD rate outlook depends on latest RBNZ rate decision for 2021

New Zealand dollar talking points

The NZD / USD extends the streak of lows and lows since the end of last week as it trades at a new monthly low (0.6954), but the Reserve Bank of New Zealand decision (RBNZ) on interest rates could influence the near-term outlook for the rate swap as the central bank is expected to proceed with another rate hike.

NZD / USD rate outlook depends on latest RBNZ rate decision for 2021

The NZD / USD seems to be on the right track to test the October low (0.6877) on the back of the strength of the US dollar, and the exchange rate may continue to depreciate over the remainder of the month as the Federal Reserve implements its exit strategy.

However, the last RBNZ meeting for 2020 could trigger a bullish reaction from the New Zealand dollar, as the central bank is expected to raise the official exchange rate (OCR) to 0.75% from 0.50%, and a second hike. rate following hawkish forward monetary policy stance could curb recent decline in NZD / USD as governor Adrien orr and Co. warn that “further removal of monetary policy stimulus is expected over time. “

As a result, higher interest rate expectations in 2022 could generate a short-term rebound in the NZD / USD, but the New Zealand dollar could face a bearish fate if the RBNZ proceeds with an accommodative rate hike or vote to leave the OCR at 0.50%.

In turn, the NZD / USD may continue to make the advance of October low (0.6877) Unless the RBNZ extends its bull cycle into the coming year, but a further decline in the exchange rate could fuel the recent turnaround in retail sentiment, like the behavior seen earlier this year.

Image of IG client sentiment for NZD / USD rate

The IG Customer Sentiment Report shows 54.01% of traders are currently net-long NZD / USD with the ratio of long / short traders upright to 1.17 to 1.

The number of net-long traders is 11.49% higher than yesterday and 20.88% higher than last week, while the number of net-short traders is 1.44% higher at that of yesterday and 12.19% lower than last week. The rise in net long interest rates caused a shift in retail sentiment as 40.82% of traders were net long NZD / USD last week, while the decline in net short position could be a function of profit taking behavior as an exchange rate. is trading at a new monthly low (0.6954).

That said, the RBNZ meeting could influence the NZD / USD ahead of the Federal Open Market Committee (FOMC) decision on December 16 as chairman. Jerome Powell and Co. are expected to update the Summary of Economic Projections (SEP), but failed attempts to push back above the 50-day SMA (0.7046) indicated a potential change in the short-term trend as the moving average begins to reflect a negative slope.

Daily NZD / USD rate chart

Image of the daily chart of the NZD / USD rate

Source: Trading view

  • Keep in mind that a head and shoulder formation materialized in the first quarter of 2021 as the NZD / USD slipped below the 50 day SMA (0.7046) for the first time since November, with the exchange rate falling below the 200-day SMA (0.7087) for the first time since June 2020 to trade at a new annual low (0.6805) in August.
  • Nonetheless, the NZD / USD reversed course ahead of the November 2020 low (0.6589) amid the unsuccessful attempt to close below the 0.6810 region (38.2% expansion), the exchange rate exceeding the September high (0.7170) in the previous month as the Relative Strength Index (RSI) briefly pushed above 70 during the same period.
  • However, the NZD / USD is under pressure again after struggling to test the October high (0.7219), with the unsuccessful attempt to get back on top the 50-day SMA (0.7046) pushing the exchange rate to a new monthly low (0.6954).
  • Need a break / close below the Fibonacci overlaps around 0.6940 (50% expansion) to 0.6960 (38.2% retracement) bring theOctober low (0.6877) on the radar, with movement below the 0.6870 (50% retracement) area opening the region of 0.6810 (38.2% expansion), which corresponds to the low of August (0.6805).
  • Meanwhile, the failure of break / close below Fibonacci overlap around 0.6940 (50% expansion) to 0.6960 (38.2% retracement) could push the NZD / USD back towards the 0.6990 region (23.6% retracement), with the next area of ​​interest coming around 0.7070 (61.8% expansion) to 0.7110 (38.2% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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