- The NZD/USD has bounced a bit from the recent low during the trading session on Tuesday, which is just above the 0.55 level.
- Keep in mind that the New Zealand dollar is highly levered to commodity markets, and of course risk appetite.
- The Asian markets will continue to have a major influence on the New Zealand dollar as well, as New Zealand is a major supplier of commodities, particularly agricultural commodities, to Asia and therefore it’s likely that we have seen a lot of noise based upon the idea that China is struggling.
The 0.58 level above should be significant resistance, and therefore I think it’s probably only a matter of time before we would see selling pressure. Even if we were to break above there, the 50-Day EMA sits just below the 0.60 level and is dropping significantly from there. The 0.60 level is a large, round, psychologically significant figure, and an area that had been massive support previously. At this point, I think any signs of exhaustion in that area should continue to be thought of as a selling opportunity, if we get anywhere near there.
Dollar Likely to Strenghten
If we break down below the 0.55 level, it’s likely that we go down to the 0.53 level, followed by the 0.50 level. This is a very difficult situation for commodity currencies and of course commodity markets. I think that anytime you rally, you need to be looking for an opportunity to start shorting again. Quite frankly, a lot of this comes down to the Federal Reserve and whether they are going to pivot. They are nowhere near doing that, and as a result we should continue to see plenty of volatility and of course US dollar strength overall.
As we get the CPI numbers coming out on Thursday, it’s likely that we will continue to see a little bit of a drift between now and then, but if that CPI never comes out above 0.2%, it’s likely that we will continue to see the US dollar strengthened quite drastically. If we see a much lower number, then it’s possible we may see a little bit of a recovery for the short-term, but I think eventually the sellers will come back even if that number does miss, because unless we see a complete collapse in inflation, the Federal Reserve is still on track to continue tightening.
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