New Zealand Dollar Talking Points
NZD/USD trades a fresh weekly high (0.7095) following a batch of mixed US data prints, and the exchange rate may continue to retrace the decline following the Federal Reserve interest rate decision as it extends the series of higher highs and lows from the start of the week.
NZD/USD Climbs Back Above 200-Day SMA as Bullish Price Series Persists
NZD/USD climbs back above the 200-Day SMA (0.7043) after slipping below the moving average for the first time since March 2020, and the exchange rate may stage a larger rebound over the remainder of the month as fresh data prints coming out of the US point to ongoing slack within the economy.
The update to the Personal Consumption Expenditure (PCE) Price Index shows the headline reading climbing to 3.9% from 3.6% per annum in April, with the Fed’s preferred gauge for inflation widening to 3.4% from 3.1% during the same period. However, US Personal Spending unexpectedly held flat in May after expanding 0.9% the month prior, and the mixed data prints may encourage the Federal Open Market Committee (FOMC) to retain the current course for monetary policy as the central bank braces for a transitory rise in inflation.
It remains to be seen if the FOMC will gradually adjust the forward guidance over the coming months as Fed officials project two rate hikes for 2023, but it seems as though the central bank will stick to the same script at the next interest rate decision on July 28 as Chairman Jerome Powell pledges to “provide advance notice before announcing any decision to make changes to our purchases.”
Until then, NZD/USD may continue to retrace the decline following the Fed rate decision as it extends the bullish price series from the start of the week, but the recent rebound in the exchange rate has spurred a flip in retail sentiment like the behavior seen earlier this year.
The IG Client Sentiment report shows 49.12% of traders are currently net-long NZD/USD, with the ratio of traders short to long standing at 1.04 to 1.
The number of traders net-long is 10.23% lower than yesterday and 12.03% lower from last week, while the number of traders net-short is 2.25% higher than yesterday and 6.35% higher from last week. The decline in net-long position could be a function of profit-taking behavior as NZD/USD trades a fresh weekly high (0.7095), while the rise in net-short interest has helped to fuel the shift in retail sentiment as 56.51% of traders were net-long the pair on June 15.
With that said, the recent rebound in NZD/USD may coincide with the shift in retail sentiment to largely mimic the behavior from earlier this year, and the exchange rate may continue to retrace the decline following the Fed rate decision as it extends the series of higher highs and lows from the start of the week.
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 slipped below the 50-Day SMA (0.7177) 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 slips to a fresh 2021 low (0.6923) in June.
- NZD/USD has climbed back above the 200-Day SMA (0.7043) after slipping below the moving average for the first time since March 2020, with the rebound in the exchange rate pulling the Relative Strength Index (RSI) out of oversold territory as it briefly slipped below 30.
- However, the RSI may show the recent rebound in NZD/USD abating as it tracks the downward trend from earlier this year, with failure to break/close above the Fibonacci overlap around 0.7070 (61.8% expansion) to 0.7110 (38.2% expansion) bringing the 0.6940 (50% expansion) to 0.6960 (38.2% retracement) region back on the radar.
- Nevertheless, a break/close above the Fibonacci overlap around 0.7070 (61.8% expansion) to 0.7110 (38.2% expansion) may push NZD/USD towards the 50-Day SMA (0.7177), with the next area of interest coming in around 0.7260 (78.6% expansion) followed by the 0.7320 (23.6% expansion) to 0.7350 (23.6% expansion) region.
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong