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NZD/USD Faces Key Resistance As Bullish Momentum Ripens

Key Talking Points:

  • NZD/USD facing key resistance as bullish consolidation continues
  • New Zealand Covid-19 cases continue to rise after national lockdown imposed back in August

The New Zealand Dollar has been putting on a strong performance over the last two weeks as the currency recovered from the aftermath of the latest RBNZ meeting. The decision to postpone a rate hike on the back of a three-day snap lockdown after one case of Covid-19 was discovered in Auckland the day before was of great detriment to the kiwi, which dropped over 3% against the US Dollar, breaking a key support area that had been holding for months.

But the pair has fully reversed those losses, albeit at a slower pace than it fell, and is about to break above its recent resistance range (0.7048 – 0.7093) for the first time since July 6th. That time it turned out to be a false breakout so buyers will need to be careful about holding on above 0.71 if bullish momentum is expected to hold in the long run. In close proximity, the 200-day SMA is converging (0.7118) and so bulls may have a tough time consolidating any further gains, with a corrective pullback likely at some point.

NZD/USD Daily chart

NZD/USD Faces Key Resistance As Bullish Momentum Ripens

If held above 0.71, the rise to 0.72 shouldn’t be that hard as momentum builds, but once there I would expect there to be some strong conflicting pressures keeping the pair volatile around 0.72, following what we saw back in April and May. The RSI is still building towards 70 so there is still potential for a break higher but I would be surprised if the 0.73 mark is touched anytime soon, as resistance is likely to build along the way.

Local Covid-19 cases have been rising in New Zealand since the first case was detected on the 16th of August, with a 7-day rolling average of 60 new cases per day, its highest since the pandemic first broke out back in April 2020. This is likely to remain as a headwind for the kiwi as its key advantage over other currencies was the likelihood of a rate hike from the RBNZ, which was one of the most hawkish central banks to date.

The pair (NZD/USD) is also being supported by yesterday’s disappointing ADP figures, which have made investors nervous about tomorrow’s NFP reading, as there seems to be a lot riding on a strong outcome. If so, the USD is likely to pick up some momentum, bringing the pair back towards its 100-day SMA (0.7065), whilst a weaker than expected figure would likely offer NZD/USD another leg higher.

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin


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