NZD/USD: RBNZ Toughens Verbal Intervention, Head & Shoulders in Play

2017-08-31 14:42:00

David Song,

Talking Points:

- Canada Dollar Outperforms on Upbeat GDP Report, Bullish USD/CAD Sequence at Risk.

- NZD/USD: RBNZ Toughens Verbal Intervention, Head-and-Shoulders in Play.

- Percentage of Traders Net-Long USD/CAD is Now Its Highest Since June.

Ticker	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/CAD	1.2537	1.2663	1.2525	84	138

The Canadian dollar outperforms its major counterparts as the region’s 2Q Gross Domestic Product (GDP) report showed the economy expanding at the fastest pace since 2011.

The ongoing series of better-than-expected data prints may encourage the Bank of Canada (BoC) to adopt a more hawkish tone a the September 6 interest rate decision, and the shift in USD/CAD behavior may continue to unfold throughout the remainder of the year should Governor Stephen Poloz and Co. increase their efforts in preparing households and businesses for higher borrowing-costs. In turn, USD/CAD may face range-bound conditions going into the BoC rate-decision, with the pair at risk of giving back the rebound from the monthly-low (1.2443) if it fails to preserve the series of higher highs & lows carried over from the previous week.

See how shifts in USD/CAD retail positioning are impacting trend- Click here to learn more about sentiment!

USD/CAD Daily Chart

Chart - Created Using Trading View

USD/CAD may snap the bullish sequence from earlier this week, with the pair at risk of facing range-bound conditions as it struggles to hold above the Fibonacci overlap around 1.2620 (50% retracement) to 1.2640 (61.8% expansion).
A move back below the 1.2510 (78.6% retracement) region may spur another run at near-term support zone around 1.2410 (100% expansion) to 1.2440 (23.6% expansion), which lines up the 2017-low (1.2413).
The Relative Strength Index (RSI) suggests a larger recover could be underway as it clings to the bullish formation carried over from late-July, but failure to preserve the upward trend may generate fresh lows in the dollar-loonie exchange rate as USD/CAD turns around ahead of the monthly opening range.

Ticker	Last	High	Low	Daily Change (pip)	Daily Range (pip)
NZD/USD	0.7152	0.7210	0.7132	50	78

NZD/USD extends the decline from earlier this month as Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler warns ‘a lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth,’ with the pair at risk for further losses as the central bank appears to be in no rush to move away from the record-low cash rate.

Even though Governor Wheeler is scheduled to step down next month, it seems as though RBNZ officials will continue to jawbone the New Zealand dollar while retaining the current policy as ‘headline inflation is likely to decline in coming quarters as the effects of higher fuel and food prices dissipate.’ With that said, NZD/USD may struggle to hold its ground ahead of the next RBNZ meeting on September 28, with the pair at risk of giving back the rebound from the 2017-low (0.6818) as the central bank shows a greater willingness to carry the current policy into 2018.

NZD/USD Daily Chart

Chart - Created Using Trading View

A head-and-shoulders formation appears to be finally playing out as NZD/USD breaks the neckline around 0.7190 (50% retracement) to 0.7200 (38.2% retracement) and slips to a fresh monthly-low (0.7132).
Downside targets remain on the radar, with a break of the 200-Day SMA (0.7131) opening up the next region of interest around 0.7100 (38.2% retracement) to 0.7110 (38.2% expansion) followed by the 0.7040 (50% retracement) region.
Keeping a close eye on the Relative Strength Index (RSI) as at approaches oversold territory, with a break below 30 raising the risk for a further decline in kiwi-dollar as the bearish momentum gathers pace.

Retail Sentiment

Retail trader data shows 72.8% of traders are net-long USD/CAD with the ratio of traders long to short at 2.68 to 1. In fact, traders have remained net-long since June 07 when USD/CAD traded near 1.34832; price has moved 7.0% lower since then. The number of traders net-long is 6.8% lower than yesterday and 1.3% lower from last week, while the number of traders net-short is 4.6% lower than yesterday and 30.4% lower from last week.
Retail trader data shows 36.0% of traders are net-long NZD/USD with the ratio of traders short to long at 1.78 to 1. In fact, traders have remained net-short since May 24 when NZD/USD traded near 0.68954; price has moved 3.7% higher since then. The number of traders net-long is 4.0% lower than yesterday and 11.1% lower from last week, while the number of traders net-short is 10.0% higher than yesterday and 2.3% lower from last week.