New Zealand Dollar Talking Points
NZD/USD appears to be defending the monthly range as it bounces back from the session low (0.6921), and the exchange rate may track sideways throughout the week as the Federal Reserve enters the blackout period ahead of its next interest rate decision on July 28.
New Zealand Dollar Forecast: NZD/USD Rate Defends Monthly Range
NZD/USD gives back the advance following the Reserve Bank of New Zealand (RBNZ) interest rate decision as a growing number of Federal Reserve officials show a greater willingness to switch gears, and it seems as though both central banks will follow a similar path as Governor Adrian Orr and Co. plan to “halt additional asset purchases under the Large Scale Asset Purchase (LSAP) programme by 23 July 2021.”
Meanwhile, it may only be a matter of time before the Federal Open Market Committee (FOMC) tapers its quantitative easing (QE) program as the US economy is expected to grow 7.0% this year, and Chairman Jerome Powell and Co. may gradually adjust the forward guidance over the coming months as Fed officials project two rate hikes in 2023.
In turn, it remains to be seen if the decline from the June high (0.7288) will turn out to be a potential change in the broader trend as NZD/USD trades below the 200-Day SMA (0.7073) for the first time since June 2020, but the range bound price action may continue to spur a shift in retail sentiment as traders flip net-long for the third time in July.
The IG Client Sentiment report shows 58.28% of traders are currently net-long NZD/USD, with the ratio of traders long to short standing at 1.40 to 1.
The number of traders net-long is 14.37% higher than yesterday and 7.02% higher from last week, while the number of traders net-short is 17.61% lower than yesterday and 15.21% lower from last week. The rise in net-long position comes as NZD/USD defends the monthly range, while the decline in net-short interest could be a function of profit-taking behavior as the exchange rate bounces back from the session low (0.6921).
With that said, the range bound price action in NZD/USD may continue to spur a shift in retail sentiment to largely mimic the behavior from earlier this month, but failure to defend the monthly range may indicate a potential change in the broader trend as the exchange rate trades below the 200-Day SMA (0.7073) for the first time in a year.
NZD/USD Rate Daily Chart
Source: Trading View
- Keep in mind, a head-and-shoulders formation materialized in the first quarter of 2021 as NZD/USD pushed below the 50-Day SMA (0.7107) for the first time since November, and it remains to be seen if the decline from the yearly high (0.7465) will turn out to be a correction in the broader trend or a change in market behavior as the exchange rate trades below the 200-Day SMA (0.7073) for the first time since June 2020.
- NZD/USD slipped to a fresh yearly low (0.6923) in June as the Relative Strength Index (RSI)established a downward trend in April, but the exchange rate appears to be stuck in a defined range amid the string of failed attempts to close below the Fibonacci overlap around 0.6940 (50% expansion) to 0.6960 (38.2% retracement).
- In turn, NZD/USD may work its way back towards the 0.7070 (61.8% expansion) to 0.7110 (38.2% expansion) region as it defends the monthly range, which largely lines up with the 200-Day SMA (0.7073).
- Need a breakdown of the monthly range to open up the 0.6870 (50% retracement) region, with the next area of interest coming in around 0.6810 (38.2% expansion).
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong