NZD/USD Eyes Former Support Again

New Zealand Dollar Forecast: NZD/USD Eyes Former Support Again

NZD/USD may stage another run at the former support zone around the December low (0.6701) as it appears to be extending the series of higher highs and lows from earlier this week.

NZD/USD trades to a fresh weekly high (0.6691) despite the larger-than-expected rise in US Retail Sales, and the exchange rate may stage another run at the former support zone around the December low (0.6701) as the Federal Open Market Committee (FOMC) Minutes appear to be dragging on the Greenback.

It seems as though the FOMC Minutes have tamed speculation for an uber hawkish central bank as Fed officials emphasize “that maintaining flexibility to implement appropriate policy adjustments on the basis of risk-management considerations should be a guiding principle in conducting policy in the current highly uncertain environment,” and it remains to be seen if Chairman Jerome Powell and Co. will adjust its exit strategy as “some participants commented on the risk that financial conditions might tighten unduly in response to a rapid removal of policy accommodation.”

With that said, waning speculation for an aggressive Fed hiking-cycle may fuel a larger recovery in NZD/USD, and the exchange rate may stage another run at the former support zone around the December low (0.6701) as it appears to be extending the series of higher highs and lows from earlier this week.

NZD/USD Rate Daily Chart

Source: Trading View

NZD/USD carves a bullish price series after defending the monthly low (0.6590), with the exchange rate approaching the former support zone around 0.6690 (38.2% expansion) to 0.6710 (61.8% expansion), which largely lines up with the December low (0.6701).

A close above the former support zone around 0.6690 (38.2% expansion) to 0.6710 (61.8% expansion) along with a move above the 50-Day SMA (0.6730) may push NZD/USD to fresh monthly highs, with a move above the Fibonacci overlap around 0.6770 (23.6% expansion) to 0.6810 (38.2% expansion) bringing the 0.6870 (50% retracement) area on the radar.

However, the rebound from the January low (0.6529) may turn out to be a correction in the broader trend if the former support zone, and another failed attempt to close above the overlap around 0.6690 (38.2% expansion) to 0.6710 (61.8% expansion) may pull NZD/USD back towards the 0.6630 (50% expansion) to 0.6640 (23.6% expansion) region, with the next area of interest coming in around 0.6570 (61.8% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong