Never miss a story from David Song

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to David Song

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

New Zealand Dollar Talking Points

NZDUSD attempts to retrace the selloff following the Reserve Bank of New Zealand (RBNZ) meeting, but the ongoing trade dispute between the US and China may continue to drag on the exchange rate amid the weakening outlook for the Asia/Pacific region.

NZDUSD Rebound Unravels as NZ Treasury Identifies Lower Bound for OCR

NZDUSD struggles to retain the rebound from the monthly-low (0.62377) even though US President Donald Trump tweets “China wants to make a deal so badly,” and little indications of an impending resolution may push the Reserve Bank of New Zealand (RBNZ) to further insulate the economy as China weakens the Yuan reference rate.

The threat of a currency war may push the RBNZ to endorse a dovish forward guidance ahead of the next meeting on September 24, but it remains to be seen if Governor Adrian Orr and Co. will deliver another rate cut after reducing the official cash rate (OCR) by 50bp in August.

Image of RBNZ interest rate decision

Nevertheless, recent remarks from the RBNZ suggest the central bank will stick to its rate easing cycle as Deputy Governor Geoff Bascand insists that “there is some probability we’ll have to go lower,” and the central bank may continue to push monetary policy into unchartered territory as economic activity needs “to be faster than potential” for the board to achieve its dual mandate.

At the same time, Bloomberg News released a draft paper from New Zealand’s Treasury Department that was acquired through the Official Information Act, with the note stating that “the limit of the OCR, before corporate bond rates reach zero, is between -0.2% and -0.35%.”

With that said, a growing number of New Zealand officials may endorse a lower trajectory for the cash rate amid the threat of a US-China trade war, and NZDUSD stands at risk of facing a more bearish fate over the near-term as the RBNZ keeps the door open to implement lower interest rates.

Sign up and join DailyFX Currency Strategist David Song LIVE for an opportunity to discuss potential trade setups.

NZD/USD Rate Daily Chart

Image of nzdusd daily chart
  • The break of the May-low (0.6482) casts a bearish outlook for NZDUSD, with the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator snaps the upward trend from earlier this year.
  • More recently, the rebound from the 2019-low (0.6377) appears to have stalled as NZDUSD struggles to extend the recent series of higher highs and lows, with the downside targets coming back on the radar amid the string of failed attempts to trade back above the former-support zone around 0.6490 (50% expansion) to 0.6520 (100% expansion).
  • Need a break/close below the Fibonacci overlap around 0.6370 (50% retracement) to 0.6430 (78.6% expansion) to open up the 0.6310 (100% expansion) hurdle, with the next area of interest coming in around 0.6180 (161.8% expansion) to 0.6210 (78.6% expansion).
  • Will keep a close eye on the RSI as it appears to be slipping back into oversold territory, with a break below 30 raising the risk for a further decline in the exchange rate as the bearish momentum reasserts itself.

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.