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NZD/USD April Range Intact as New Zealand Eases Nationwide Lockdown

NZD/USD April Range Intact as New Zealand Eases Nationwide Lockdown

David Song, Strategist

New Zealand Dollar Talking Points

NZD/USD trades in a narrow range following the failed attempt to test the monthly low (0.5843), but the exchange rate may face a more bearish fate ahead of the next Reserve Bank of New Zealand (RBNZ) meeting on May 13 as the central bank endorses a dovish forward guidance for monetary policy.

NZD/USD April Range Intact as New Zealand Eases Nationwide Lockdown

NZD/USD extends the rebound from the previous week as New Zealand starts to roll back the nationwide lockdown, and the exchange rate may continue to track the monthly range as the government takes gradual steps to restart the economy.

However, Prime Minister Jacinda Ardern urged New Zealanders to stay home if possible as the social distancing rules remain in place, and the change in lifestyle may undermine hopes for a V-shaped recovery if the behaviors sparked by the lockdown laws become a new norm.

In turn, the RBNZ may take additional steps to support the New Zealand economy as Governor Adrian Orr insists that the central bank has not ruled out a negative interest rate policy (NIRP), but it seems as though the Monetary Policy Committee (MPC) will continue to utilize the balance sheet in 2020 as “members agreed to provide forward guidance that the OCR (official cash rate) would stay at the level of 0.25 percent for at least 12 months.”

Image of RBNZ announcement

Source: RBNZ

As a result, the RBNZ may continue to endorse a dovish forward guidance at its next meeting on May 13, and it remains to be seen if Governor Orr and Co. will deploy more unconventional tools over the coming months as the central bank expands the Large Scale Asset Purchase programme (LSAP) to include NZ$ 3B of Local Government Funding Agency (LGFA) debt.

With that said, the RBNZ may continue to push monetary policy into uncharted territory as the update to China’s Gross Domestic Product (GDP) report revealed a larger-than-expected decline in the growth rate, and speculation for additional monetary support may present headwinds for the New Zealand Dollar especially as Governor Orr keeps an open mind in directly monetizing New Zealand government debt.

Nevertheless, NZD/USD may face range-bound conditions going into May as it reverses course ahead of the monthly low (0.5843), with the April high (0.6131) on the radar as the exchange rate extends the rebound from the previous week.

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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 (0.6102) crosses below the 200-Day SMA (0.6377).
  • The negative slope in both the 50-Day SMA and the 200-Day SMA offer a bearish outlook for NZD/USD, and the advance from the yearly low (0.5469) may continue to unravel as the exchange rate snaps the upward trending channel carried over from the previous month following the failed attempt to test the former support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion).
  • As a result, NZD/USD appears to be on track to test the monthly low (0.5843) as it initiates a fresh series of lower highs and lows, with the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator snaps the bullish formation from March.
  • A break/close below the 0.5880 (100% expansion) region brings the Fibonacci overlap around 0.5740 (78.6% retracement) to 0.5790 (61.8% retracement) on the radar, with the next area of interest coming in around 0.5640 (261.8% 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.