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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

David Song, Strategist

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.