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New Zealand Dollar Forecast: NZD/JPY, NZD/USD Rates in Bullish Breakout Territory

New Zealand Dollar Forecast: NZD/JPY, NZD/USD Rates in Bullish Breakout Territory

Christopher Vecchio, CFA, Senior Strategist
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New Zealand Dollar Forecast Overview:

  • The New Zealand Dollar remains on strong footing as trading in the new year gets under way. NZD/JPY rates are breached their 2020 high, while NZD/USD rates are not far behind.
  • New year, old story: the New Zealand Dollar has benefited as the Asia-Pacific region has weathered the pandemic better than the West, and moreover, coronavirus vaccine approval and deployment has begun among some of New Zealand’s largest trading partners.
  • The New Zealand Dollar has a bearish bias, according to the IG Client Sentiment Index.

New Zealand Dollar Picks Up Where it Left Off

The New Zealand Dollar is starting 2021 where it ended 2020: on a high note. While it may be a new year, the same old story remains true for the flying Kiwi: the New Zealand Dollar has benefited as the Asia-Pacific region has weathered the pandemic better than the West, and moreover, coronavirus vaccine approval and deployment has begun among some of New Zealand’s largest trading partners.

That other developed economies are staring at fresh lockdowns while New Zealand remains free of COVID-19 is a glaring example of why the Kiwi has been a magnet for speculators in recent months: when global growth returns, there may be no economy better suited in the developed world to pick up where it left off. As such, the New Zealand Dollar remains on strong footing as trading in the new year gets under way. NZD/JPY rates are breached their 2020 high, while NZD/USD rates are not far behind.

NZD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (January2020 to January 2021) (CHART 1)

New Zealand Dollar Forecast: NZD/JPY, NZD/USD Rates in Bullish Breakout Territory

Longer-term, we’re bullish on NZD/JPY rates as a major bottoming process appears to have just recently started following the early-November breakout from the descending trendline from the January 2014, July 2017, December 2018, and August 2020 highs. If a long-term bottom is being established, then we’re looking at a long-term timeframe of ‘buying the dips’ in NZD/JPY rates through at least early-2021.

On a short-term term view, NZD/JPY rates are still above the daily 5-, 8-, 13-, and 21-EMA, which is still in bullish sequential order. Similarly, daily MACD is now rising anew in bullish territory, while daily Slow Stochastics have returned back into overbought territory. While a fresh high relative to 2020 has not yet been established, NZD/JPY rates are on the precipice of their next leg higher should 74.63 be breached in the coming sessions.

NZD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (January2020 to January 2021) (CHART 2)

New Zealand Dollar Forecast: NZD/JPY, NZD/USD Rates in Bullish Breakout Territory

NZD/USD rates have been able to rally to fresh highs relative to 2020, continuing to hold above their daily 5-, 8-, 13-, and 21-EMA (which is still in bullish sequential order). It’s noteworthy that the pair recently found support at 0.7153, the 50% retracement of the 2014 high to 2020 low range; former resistance has become support, a sign of a longer-term market turn higher. Daily MACD is trending higher in bullish territory while daily Slow Stochastics are nestled in overbought territory. With favorable monthly seasonality at their back, NZD/USD rates likely have more upside ahead.

IG Client Sentiment Index: NZD/USD RATE Forecast (January 5, 2021) (Chart 2)

New Zealand Dollar Forecast: NZD/JPY, NZD/USD Rates in Bullish Breakout Territory

NZD/USD: Retail trader data shows 29.74% of traders are net-long with the ratio of traders short to long at 2.36 to 1. The number of traders net-long is 1.84% higher than yesterday and 13.92% higher from last week, while the number of traders net-short is 1.56% higher than yesterday and 11.22% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests NZD/USD prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current NZD/USD price trend may soon reverse lower despite the fact traders remain net-short.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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

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