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NZD/USD Analysis: Reversal Lower Brings Back Intriguing Support Level

A spike lower in NZD/USD this morning occurred, this after the Reserve Bank of New Zealand sounded more dovish than anticipated, the currency pair is now near important support.

NZD/USD Analysis Today- 10/07: Reversal, Key Support (Chart)

  • The NZD/USD currency pair is trading around 0.60870 as of this writing, this after taking a nosedive after the Reserve Bank of New Zealand kept their Official Cash Rate unchanged at 5.50%.
  • However, the RBNZ noted they are prepared to consider an interest rate cut if inflation levels continue to show signs of erosion.
  • Important inflation data will come via the New Zealand Consumer Price Index on the 17th of July.
  • The NZD/USD essentially fell from the 0.61300 level to its current values with a strong spike lower.

The important thing for day traders to consider that were not killed from the cliff dive in the NZD/USD this morning is the fact the currency pair is now trading near values it traversed last week during Tuesday and Wednesday. Yes, the NZD/USD did climb higher on the 3rd of July, but the upwards momentum was rather speculative and the sudden reversal lower might make the higher realms traded only a handful of hours ago tempting as a target in the days to come. What the RBNZ said today should not have been so surprising to financial houses.

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    NZD/USD Carry Trade Considerations and Economic Data

    Perhaps the reason financial institutions decided to sell the NZD/USD in mass is because they fear the carry trade implications regarding the potential of the Reserve Bank of New Zealand to make the interest rate of the USD higher than the borrowing costs of the NZD. However, the price movement in the NZD/USD this morning lower may have been an exaggeration.  

    The U.S is set to publish important Consumer Price Index data tomorrow and the results will cause an interesting reaction in the NZD/USD. If the CPI numbers from the U.S come in weaker than anticipated, this would create some downwards pressure for the USD, potentially allowing for bullish momentum in then NZD/USD to develop again. Inflation data in the U.S has been rather tricky; the stubborn higher prices in the U.S have not allowed the Federal Reserve to be as dovish as they had hoped. Will the Fed be able to cut sooner than expected?

    Consumer Price Index on Thursday in the U.S

    Until tomorrow’s inflation numbers from the U.S the NZD/USD is likely to test its lower range but traders should be prepared for more price velocity over the next day and a half. Traders who believe the NZD/USD has been oversold cannot be blamed, but risk management will be essential, because slightly lower depths were seen in early July for the currency pair.

    • Support for the NZD/USD may be solid around the 0.60825 level and if sustained, movement higher in the currency pair and a potential test of the 060900 to 0.61000 ratio would not be a surprise.
    • Again, tomorrow’s CPI number from the U.S should be kept in mind, traders with open positions going into the U.S publications on Thursday will need serious risk management.

    NZD/USD Short Term Outlook:

    Current Resistance: 0.60890

    Current Support: 0.60845

    High Target: 0.61125

    Low Target: 0.60780

    Ready to trade our daily Forex analysis? Here's a list of the brokers for forex trading in New Zealand to choose from. 

    Robert Petrucci
    About Robert Petrucci
    Robert Petrucci has worked in the Forex, commodity, and financial profession since 1993. Important aspects of his work involve risk analysis and advisory services. As an advisor in a Family Office he maintains a conservative approach for wealth management and investments. Robert also works in private finance with investors and companies delivering financial and management services.

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