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NZD/USD Trades to Fresh 2020 as RSI Pushes Deeper Into Oversold Zone

NZD/USD Trades to Fresh 2020 as RSI Pushes Deeper Into Oversold Zone

David Song, Strategist

New Zealand Dollar Talking Points

NZD/USD trades to a fresh yearly low (0.5691) as the Reserve Bank of New Zealand (RBNZ) stands ready to deploy unconventional tools, and the exchange rate may extend the series of lower highs and lows from the previous week as the Relative Strength Index (RSI) pushes deeper into oversold territory.

NZD/USD Trades to Fresh 2020 as RSI Pushes Deeper Into Oversold Zone

NZD/USD extends the decline following the emergency RBNZ rate cut to trade at its lowest level since 2009, with the exchange rate showing a limited reaction to the updated Gross Domestic Product (GDP) report even though New Zealand grew 1.8% during the last three-months of 2019 versus forecasts for a 1.7% print.

NZD/USD may continue to exhibit a bearish behavior as the RBNZ emphasizes that “Large Scale Asset Purchases of New Zealand Government bonds were the next best monetary tool available to the Committee,” and it seems as though Governor Adrian Orr and Co. will continue to push monetary policy into uncharted territory as the central bank also plans to “delay or slow down most of its regulatory initiatives for an initial period of six months.

Image of RBNZ interest rate decisions

In turn, the RBNZ may resort to unconventional tools to combat the weakening outlook for global growth as the central bank insists that “a negative OCR would not be implemented,” and it remains to be seen if Governor Orr and Co. will make a major announcement at the next meeting on May 13 as Chief Economist Yuong Ha insists that the asset-purchase program would be ready “as soon as possible but certainly by the May round if we needed to” during an interview with Bloomberg News.

With that said, the RBNZ may continue to highlight a dovish forward guidance even though Prime Minister Jacinda Ardern prepares as “significant” fiscal stimulus package, and the New Zealand Dollar may face a more bearish fate over the coming days as NZD/USD extends the series of lower highs and lows from the previous week, while the Relative Strength Index (RSI) pushes deeper into oversold territory.

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NZD/USD Rate Daily Chart

Image of NZD/USD rate daily chart

Source: Trading View

  • Keep in mind, NZD/USD has failed to retain the range from the second half of 2019 as the decline from earlier this year produced a break of the October low (0.6204), with a ‘death cross’ taking shape in March as the 50-Day SMA (0.6381) crosses below the 200-Day SMA (0.6457).
  • Recent developments in the Relative Strength Index (RSI) suggest the bearish momentum will persist as the oscillator holds below 30 and pushes deeper into oversold territory.
  • Break/close below the Fibonacci overlap around 0.5740 (78.6% retracement) to 0.5790 (61.8% retracement) brings the 0.5640 (261.8% expansion) region on the radar, with the next area of interest coming in around 0.5530 (161.8% expansion).

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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