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New Zealand Dollar Outperforms, Euro Gives Back

New Zealand Dollar Outperforms, Euro Gives Back

2010-05-20 05:34:00
David Song, Currency Strategist
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05.20_DWL1

The New Zealand dollar halted the four-day decline against the greenback and is the best performing currency amongst the majors during the Asian trade as the isle-nation announced plans to lower its foreign debt, and the high-yielding currency may continue to push higher throughout the day as the daily RSI bounces back from oversold territory. The NZD/USD remains nearly 80pips higher from the open after moving 80% of its daily ATR, but the lack of momentum to push above the 120-SMA at 0.6888 may lead the pair to taper the overnight advance as investors scale back their appetite for risk. Nevertheless, a Bloomberg News survey shows 14 of the 15 economists polled forecast the Reserve Bank of New Zealand to raise the cash rate to 2.75% next month from 2.50%, while investors are pricing a 70% chance for a 25bp rate hike according to Credit Suisse overnight index swaps, and the rise in interest rate expectations could lead the New Zealand dollar to outperform  over the coming months as the central bank looks to normalize policy further in the second-half of the year.

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The Euro pared the previous day’s advance and is the worst performing currency against the greenback on Thursday, and the single-currency may face increased selling pressures over the near-term as investors remain skeptical that the EUR 750B rescue package will be able to fix the root cause of the debt crisis. The EUR/USD is 50pips lower on the day after moving 54% of its average true range, and the exchange rate may continue to push lower going into the European session as the 30-minute RSI falls back from a high of 74. As a result, the euro-dollar may cross back below the 120-SMA (1.2313) and test the yesterday’s low (1.2143) for short-term support, but the dovish outlook held by the European Central Bank may continue to weigh on the exchange rate as the Governing Council aims to support the economies operating under the single-currency. At the same time, we may see a corrective retracement in the EUR/USD as the daily RSI bounces back from oversold territory, which could lead the euro-dollar to maintain a narrow range over the remainder of the week.

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To discuss this report contact David Song, Currency Analyst: instructor@dailyfx.com

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