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Forex Analysis
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The NZDUSD has found daily support at the high of the 28th of March. This comes after a sweep of the double top just below the 0.7000 big figure and ahead of the RBNZ’s rate hike next month.
The NZDUSD retains an upward momentum and is clearly targeting a break above 0.7000 during the week ahead. Multi-month targets could be as high as 0.7200 which is the October high. Expectations for the RBNZ meeting on 13 April are that there is an 80% chance of a 50bp hike being priced in. We’ve also seen the US markets price in consecutive 50bp hikes from May, and central banks have gone from a race to ZIRP to now full throttle rate hikes. High commodity prices for a sustained period will also have a positive flow for the Kiwi and we saw today that Chinese manufacturing is once again in contraction, so supply chain disruptions are around the corner.
The New Zealand CPI reading last came in at 5.9% and they have bank rates at 1% currently. New Zealand’s unemployment rate at 3.20% is one of the lowest of the G20.
The ActivTrader sentiment indicator is showing a bias towards the short side, so I am hoping to see that increase.
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My base case scenario for the NZDUSD is that we get a bounce off the 0.69450 which is a previous daily high. However, on an H1 chart we can see a couple of levels below where the bulls may wait to get a better fill. The lowest is 0.69067, with another just below current price at 0.69355. My bullish hypothesis gets invalidates with a break below the 0.687 level and the swing low form the 29th of March. Currently an entry around the 0.695, with a stoploss below 0.6870 and TP at 0.7200, gives you a decent RRR.
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Comparing the NZDUSD to some other charts, we can see that both the NZDUSD and AUDUSD are mainly at the mercy of the US dollar index. Currently the DXY is in a contraction, so I am hoping for a big pop in the Kiwi and Aussie. Comparatively the Aussie has been weakening against the Kiwi as seen in the AUDNZD and that is most likely due to the interest rate differential. So if we are expecting greater rate hikes from the RBNZ, the New Zealand dollar to me is the preferable commodity pair to trade.
