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US Dollar Outlook: NZD/USD Volatility Spikes Ahead of RBNZ

US Dollar Outlook: NZD/USD Volatility Spikes Ahead of RBNZ

Rich Dvorak, Analyst

NZD/USD PRICE OUTLOOK: KIWI-DOLLAR EYES RBNZ RATE DECISION IN WAKE OF POWELL TESTIMONY

  • The DXY Index notched a modest gain on Tuesday despite the US Dollar trading broadly mixed
  • Fed Chair Powell prompted an influx of US Dollar weakness during his congressional testimony
  • NZD/USD price volatility is set to accelerate with the RBNZ announcement on deck for release
  • Sharpen your technical analysis skills or learn about implied volatility trading strategies!
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The US Dollar traded broadly mixed during Tuesday’s session. US Dollar weakness was seen primarily against its Pound Sterling and Canadian Dollar peers, but this was offset by notable gains across USD/CHF and USD/JPY. On balance, the DXY Index eked out a 0.1% gain as US Dollar bulls look to defend a critical technical support zone around the 90.00-price level.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (25 NOV 2020 TO 23 FEB 2021)

DXY Index Price Chart US Dollar Technical Forecast

Chart by @RichDvorakFX created using TradingView

This potential area of buoyancy highlights the neckline of an apparent head-and-shoulders pattern. Failing to maintain the 90.00-handle could see the early January swing low come back into focus, which is roughly underpinned by the lower Bollinger Band. Reclaiming the 50-day simple moving average might motivate US Dollar bulls to eye the 17 February high as the next resistance level. That said, with Fed Chair Powell keen keeping market conditions highly accommodative as communicated during his congressional testimony earlier today, it seems likely that the US Dollar will continue facing bearish headwinds.

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USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges NZDUSD USDCHF

NZD/USD price action is expected to be the most active out of the majors on Wednesday. This is judging by its overnight implied volatility reading of 15.1%, which is above its 20-day average of 9.9% and ranks in the top 80th percentile of measurements taken over the last 12-months. Upcoming event risk posed by the RBNZ announcement scheduled for release Wednesday, 24 February at 01:00 GMT likely explains the sharp uptick in NZD/USD implied volatility. The Reserve Bank of New Zealand is widely expected to leave monetary policy unchanged, but forward guidance provided by RBNZ Governor Orr could weigh materially on the Kiwi and fuel volatility during the press conference.

Keep Reading – New Zealand Dollar Outlook: NZD/USD Eyeing 2018 Highs, Will RBNZ Disappoint?

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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