The New Zealand dollar has dipped well below the 0.7000 level on the foreign exchange market against the US dollar, just hours ahead of the Reserve Bank of New Zealand policy decision.
This could be a prime buying opportunity for traders that are willing to hold their nose through the recent bout of massive US dollar appreciation, which is currently causing many G7 currencies to capitulate against the greenback.
KiwiBank is very bullish towards the RBNZ and the New Zealand dollar and notes “There is a 40% chance now priced in that the RBNZ will lift the cash rate by 50bps this week. The local data has consistently exceeded expectations. Monetary policy is simply too loose for an economy running through full employment. “
The leading New Zealand bank also added “However, we don’t believe that the RBNZ will deliver a 50bp hike this week. We’re sticking with a 25bp rate hike, with the RB signalling more to come. Forecasts will need to be revised significantly higher. And we expect the RBNZ to adjust their OCR track by pulling forward forecast hikes and pushing higher the end point.”
The technical show that the potential reversal spot is either 0.6855 level now that the 0.7000 level has been cracked. Bulls have tried the 0.7000 level with no success so far, thus they might try to find a meaningful price floor below the 0.6900 handle.
According to the ActivTrader market sentiment tool, some 63 percent of traders are bullish towards the NZDUSD pair. As we typically look to fade sentiment biases, this is a bad sign for NZDUSD bulls and a big shift in sentiment since last week.
NZDUSD Short-Term Technical Analysis
The four-hour time frame shows that a recovery is likely to be dependent on whether bulls are able to defend the September and early-October lows, close to the 0.6850 level.
If the price floor holds then a recovery back towards the 0.7o00 region seems plausible. If bulls fail to defend this critical support area, then a decline towards the 0.6600 level is likely.
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NZDUSD Medium-Term Technical Analysis
The daily time frame shows that the pair could be building up for a key technical test of the massive falling wedge pattern. These types of patterns are typically considered to be classic bullish reversal pattern.
According to technical analysis the retest of the wedge is likely to be successful while the NZDUSD pair trades above the 0.6850 level. Failure under 0.6850 and retest of the bottom of the wedge, around the 0.6600 level likely.
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