Talking Points:
- NZD/USD is at a one-month low as the central bank looks to talk the Kiwi lower.
- Monetary policy is set to remain accommodative for a ‘considerable period.’
- NZDUSD is technically oversold but any bounce may find further sellers.
Fundamental Forecast for NZD: Neutral
The Reserve Bank of New Zealand (RBNZ) left monetary policy unchanged at governor Graeme Wheeler’s last monetary policy meeting on Thursday. The governor left rates unchanged at 1.75% but said that a lower New Zealand dollar is needed to “increase tradables inflation and help deliver more growth.” This comment, coupled with the closing “monetary policy will remain accommodative for a considerable period” sent the Kiwi lower and back to levels last seen over one month ago. The governor who is set to leave on September 26 also said in comments to a parliamentary committee that currency market intervention to weaken the NZD is “always open to us.”
A look at the chart below shows NZDUSD appreciating from a 0.6820 low on May 11 to a recent high of 0.7560 on July 27 before sentiment changed sharply. A rebound to the head and shoulders neckline at 0.7368 remains a possibility with the pair sitting in oversold stochastic territory at just over 23.
However a central bank that willingly says that currency intervention is a possibility and reiterates that the NZD is too high for its liking, normally gets its way. This leaves the July 11 low of 0.7205 vulnerable as the next downside target ahead of the Fibonacci 50% retracement at 0.7188 and the 61.8% retracement at 0.7110.
Chart NZDUSD Daily Timeframe (February 2017 - August 11, 2017)
Chart by IG
And retail traders will hope the market continues to move lower as IG Client Sentiment data shows 28.6% of traders are net-long with the ratio of traders short to long at 2.5 to 1. In fact, traders have remained net-short since May 24 when NZDUSD traded near 0.68562; price has moved 6.5% higher since then. The number of traders net-long is 23.8% lower than yesterday and 13.3% lower from last week, while the number of traders net-short is 8.4% lower than yesterday and 22.7% lower from last week. While we typically take a contrarian view – suggesting NZDUSD should move higher – the combination of current sentiment and recent changes gives us a mixed trading bias.
If you would like to know about the IG Client Sentiment Indicator and how to use it, please click here for a free guide.
--- Written by Nick Cawley, Analyst.
To contact Nick, email him at nicholas.cawley@ig.com
