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Bearish NZD/USD Trend Continues to Materialize on Dovish RBNZ

Bearish NZD/USD Trend Continues to Materialize on Dovish RBNZ

2018-08-09 15:30:00
David Song, Currency Strategist
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New Zealand Dollar Talking Points

NZD/USD tumbles to fresh 2018 lows as the Reserve Bank of New Zealand (RBNZ) casts a dovish outlook for monetary policy, and the exchange rate stands at risk of extending the decline from the earlier this year as it snaps the range-bound price action carried over from the previous month.

Image of daily change for major currencies

Bearish NZD/USD Trend Continues to Materialize on Dovish RBNZ

Image of daily change for nzdusd

Fresh remarks from the RBNZ suggest the central bank will keep the official cash rate (OCR) at the record-low throughout 2018 as Governor Adrian Orr & Co. ‘expect to keep the OCR at this level through 2019 and into 2020, longer than we projected in our May Statement,’ and the central bank may continue to buy more time at the next meeting on September 26 as officials warn that the ‘recent moderation in growth could last longer.

Image of rbnz calendar

It seems as though the RBNZ will keep the door open to further embark on its easing-cycle as Assistant Governor John McDermott warns that the central bank has ‘been pushed nearer’ to cutting interest rates amid the mixed data prints coming out of the economy, and the dovish forward-guidance for monetary policy instills a bearish outlook for NZD/USD especially as the Federal Open Market Committee (FOMC) appears to be on track to implement four rate-hikes in 2018.

With that said, recent price action in NZD/USD brings the downside target back on the radar as it snaps the range-bound price action carried over from July, with the exchange rate at risk of exhibiting a more bearish behavior as the Relative Strength Index (RSI) quickly approaches oversold territory. 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
  • Downside targets are back on the radar for NZD/USD following the break of the July-low (0.6688), with a break/close below the 0.6600 (23.6% retracement) to 0.6630 (78.6% expansion) region raising the risk for a move towards 0.6520 (100% expansion).
  • Next region of interest comes in around 0.6370 (50% retracement) to 0.6430 (78.6% expansion); will keep a close eye on the RSI as it comes up against oversold territory, with a break below 30 raising the risk for a further decline in the exchange rate as it suggests the bearish momentum is gathering pace.
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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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