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NZD/USD to Stage Larger Rebound as RSI Flashes Buy Signal

NZD/USD to Stage Larger Rebound as RSI Flashes Buy Signal

2018-07-05 20:00:00
David Song, Strategist
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New Zealand Dollar Talking Points

The New Zealand dollar outperforms its major counterparts following the U.S. holiday, with recent price action highlighting the scope for a larger rebound in NZD/USD as it carves a fresh series of higher highs & lows.

Image of daily change for major currencies

NZD/USD to Stage Larger Rebound as RSI Bounces Back From Overbought Territory

Image of daily change for NZDUSD

NZD/USD pares the sharp decline from earlier this week even as the Federal Open Market Committee (FOMC) Minutes warn of additional rate-hikes, and the monthly opening range is in focus for the kiwi-dollar exchange rate as it comes off the 2018-low (0.6688).

The FOMC Minutes suggest the central bank will continue to normalize monetary policy over the coming months as ‘members viewed the recent data as consistent with a strong economy that was evolving about as they had expected,’ and Chairman Jerome Powell and Co. may continue to prepare U.S. households and businesses for higher borrowing-costs as ‘participants viewed recent price developments as consistent with their expectation that inflation was on a trajectory to achieve the Committee's symmetric 2 percent objective on a sustained basis.’

With that said, the deviating paths for monetary policy casts a long-term bearish outlook for NZD/USD especially as the Reserve Bank of New Zealand (RBNZ) remains in no rush to lift the official cash rate (OCR) off of the record-low, and but recent price action raises the risk for a larger rebound in the exchange rate as it carves a fresh series of higher highs & lows, while the Relative Strength Index (RSI) comes off of oversold territory and flashes a textbook buy-signal as the momentum indicator crosses back above 30. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

NZD/USD Daily Chart

Image of NZDUSD daily chart
  • The near-term decline in NZD/USD appears to have stalled ahead of the May 2016-low (0.6675) as it fails to close below the 0.6710 (61.8% expansion) to 0.6720 (61.8% expansion) region, with the RSI highlighting a similar dynamic as it bounces back from oversold territory.
  • Need a close above the 0.6780 (100% expansion) to 0.6790 (50% expansion) hurdle to open up the topside targets, with the next region of interest coming in around 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion), the former-support zone.

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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