New Zealand Dollar Ahead of Fed Rate Decision; NZD/USD, AUD/NZD, EUR/NZD Price Setups

NZD/USD, AUD/NZD, EUR/NZD – Outlook:

• NZD remains within its well-established range.
• Tentative signs at best that AUD/USD is attempting to form a higher base.
• EUR/NZD needs to break above 1.81 is needed for the upward pressure to resume.

Those looking for directional plays in the New Zealand dollar against some of its peers may have to wait a little longer, at least until there are signs of divergence in monetary policy outlooks.

Converging monetary policy outlooks have left currency pairs to the ebb and flow of data, which tends to be at best noise unless viewed from a zoomed-out perspective. In this regard, the key focus is on the US Fed rate decision on Wednesday. The central bank is widely expected to raise interest rates one last time this year, with the key focus on its forward guidance.

A hawkish hike could provide support to the US dollar globally. A more data-dependent / ‘wait-and-watch’ could put USD back within its recent ranges, whereas a dovish hike could exert downward pressure on USD, boosting NZD.

The Reserve Bank of New Zealand kept interest rates on hold earlier this month, with a view that NZ rates are at their peak. However, stubbornly high NZ inflation (climbed 1.1% on-month in the June quarter Vs 0.9% expected) complicates the policy outlook. Markets are pricing in around a 50% chance of another RBNZ rate hike with no rate cuts until mid-2024.

NZD/USD Daily Chart

Chart Created Using TradingView

NZD/USD: Looking for a clear direction

On technical charts, three signs indicate NZD/USD remains at best within its well-established range from March. NZD/USD rose in mid-July above key resistance on the upper edge of a downtrend channel since the start of the year but subsequently failed to cross another vital hurdle at the May high of 0.6385.

As mentioned in the previous update, a move above 0.6385 is vital for the broader bearishness to reverse. See “New Zealand Dollar Flexes Muscles Ahead of RBNZ; NZD/USD, EUR/NZD, GBP/NZD Price Action”, published July 11. Last week’s fall below the resistance-turned-support at 0.6250 has scaled back the upward pressure, putting NZD/USD back within its well-defined range. A fall below the May low of 0.6000 would be needed for the broad bearishness to resume.

AUD/NZD Daily Chart

Chart Created Using TradingView

AUD/NZD: Re-attempting to form a base?

AUD/NZD has been essentially sideways since the beginning of the year. The broader range established is 1.05-1.11, though most recently, it has narrowed a shade to 1.06-1.11. Interestingly, the cross is attempting to form a higher base, assuming last week’s rebound trickles through. The higher-high-higher-low pattern since April is another sign of a potential uptrend. Key support is around 1.0700, including an uptrend channel from April and a rising pitchfork channel from December.

EUR/NZD Weekly Chart

Chart Created Using TradingView

EUR/NZD: Dark clouds clearing?

EUR/NZD’s hold above key support on a horizontal trendline from October (at about 1.7550) has meant that the uptrend remains intact. That is, despite the choppy price action since April, EUR/NZD hasn’t broken any significant pivot support. However, the cross needs to break above the immediate barrier at the April high of 1.81 for the uptrend to resume. A failure to do so would imply a continuation of the 1.72-1.81 range.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish