- NZD/USD inched higher on Monday but remains trapped between the 50-day and 200-day EMAs as traders fixate on Wednesday’s FOMC decision.
- The reaction to messaging around rate cuts or data dependence will likely dictate the pair’s next decisive move.
The New Zealand dollar has been slightly positive against the US dollar during trading on Monday, but it looks like we are going to continue to pay close attention to the 0.58 level. The 0.58 level has been important multiple times in the past. And now that we are between the 50-day EMA and the 200-day EMA indicators, it's possible that traders will look at this as an area that could get quite choppy.
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Impact of FOMC Communication
Furthermore, on Wednesday, we have the FOMC interest rate decision, and a lot of traders will be watching that very closely for hints as to what the Federal Reserve will do next. If they look like they're going to cut in rapid fire succession, that could send the New Zealand dollar higher, at least in the short term, because it should soften the US dollar. The question, of course, will be if they choose that route, will the market start to get worried about what the Federal Reserve sees coming down the road?
On the other hand, if they use a phrase like “data dependent”, then it's likely that traders will be worried about the Federal Reserve being tight and therefore the US dollar should pick up strength. This is a very interesting spot we find ourselves in, and after the massive sell-off of the New Zealand dollar, it'll be interesting to see if we see signs of exhaustion and then a breakdown below the 50-day EMA, as that would confirm a continuing downtrend.
Ultimately, this is a market that I think will be choppy, and this is all about the Federal Reserve and probably not much else. So, the end of the day on Wednesday will more likely than not determine what the next big move is.
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