NZD/USD fell for most of the session on Friday as the “risk off” trade came back into play. However, as they normally do – the Americans picked up the risk as the Europeans went home for the weekend. This resulted in a bounce back in the price of risk related assets around the markets, the Kiwi dollar included.
The pair managed to find support at the 0.81 level, and this makes sense to me as the area saw such heavy resistance in the form of several shooting stars the previous week. This is the old adage, “What was once the ceiling is now the floor” in technical analysis. Because of this, I think there could even be a bit of a floor in this market at that level.
Commodities and the Fed
The Federal Reserve is widely expected to ease monetary policy in September, and as a result the commodity markets should get a boost between now and then. This should benefit the New Zealand dollar as it is so closely tied to the agricultural futures. This commodity currency is known to reflect the overall “attitude” of the commodity markets, and as long as people think the Fed is going to ease, the attitude should be one of rising prices.
The shape of the candle on Friday is also telling. A hammer on support that goes with the overall trend is one of the clearest signals the market can send. This is a sign that people who originally missed the surge higher are now trying to join in. This should continue to push prices higher, and as a result this pair will more than likely aim for the 84 handle.
The Fed doesn’t make a decision until the September meeting, and as such we could see a nice little run in this pair between now and then. This should give us a bit of running room as this pair is a bit less liquid than the others, and it allows for quicker moves. At the moment, selling isn’t even a thought, and it won’t be until we close below the 0.80 level.