The New Zealand dollar has rebounded sharply in recent weeks against its peers in the G10 space. Against the US dollar, the New Zealand currency needs to clear a final barrier for the outlook to improve materially.
NZD has gained sharply since late April – a possibility highlighted in the previous update “How Much More Downside in New Zealand Dollar: Price Setups in NZD/USD, AUD/NZD, EUR/NZD”, published April 20.
NZD has been boosted by growing expectations of another rate hike by the Reserve Bank of New Zealand at its May 24 meeting following a bigger-than-expected 50 basis points increase in April. New Zealand inflation is at 6.7% on-year, not too far from the three-decade highs of 7.3% hit in Q2-2022, NZ jobs market, including wage growth, is still strong. Unless there are material signs of moderation in inflation and the labour market, RBNZ rate cuts are distant.Key focus will be on the forward guidance of RBNZ – any indication of a pause could take the sting out of NZD’s rally.
In contrast, the US Federal Reserve has indicated a pause in its rate hiking campaign, and US CPI data earlier this week supports the case for a Fed pause. Money markets are pricing 75 basis points of Fed rate cuts by the year-end. The relative monetary outlook appears to be in favour of NZD for now. The risk, of course, is risk sentiment takes a back seat on lingering banking sector concerns and uncertainty related to the US debt ceiling, weighing on NZD.
NZD/USD Daily Chart
NZD/USD: Rebounds from a strong cushion at the March low
NZD/USD rebounded at the end of last month from a strong cushion to the March low of 0.6085 (the previous updatehighlighted the case for a rebound from the March low). It is now testingcrucial resistance on the upper edge of the Ichimoku cloud cover on the daily and weekly charts, coinciding with the early-April high of 0.6375.
Any break above would trigger a double bottom pattern (the March and April lows), pointing to a potential rise toward 0.6650. Importantly, such a break would reinstate the higher-top-higher-bottom sequence. Interim resistance is at the February high of 0.6540 and the 200-week moving average at 0.6585. For the downward pressure to resume, NZD/USD would need to fall below 0.6085. Until then, the path of least resistance is sideways to up.
AUD/NZD Daily Chart
AUD/NZD: Turns lower from a key barrier
AUD/NZD’s retreat from the upper edge of the Ichimoku cloud on the daily charts and the 200-day moving average, slightly below the February high of 1.1085 confirms that the path of least resistance remains sideways down. Any break below immediate support at the early-April low of 1.0585 could open the door initially toward the end-2022 low of 1.0470. Subsequent support is at the 2021 low of 1.0275.
GBP/NZD Weekly Chart
GBP/NZD: Mean reverting?
The sharp retreat from a tough hurdle at the February 2022 and the October 2022 highs of 2.0300-2.0530 have raised the odds that GBP/NZD could be moving back within the range. The mid-point of the range is around 1.9400. For the outlook to turn bullish, GBP/NZD would need to cross above the February 2022 high of 2.0530.