The NZDUSD rallied by +1.00% early Monday morning ahead of the Reserve Bank of New Zealand policy meeting. The Reserve Bank is expected to hike rates by 50bps from 1.5% to 2% on Wednesday. Investors are pricing in on the hawkish sentiment although the press statement will be critical in mapping the direction of the central bank going forward.
The latest CPI and Labour market reports both continued to indicate soaring inflationary pressure. More specifically, Average hourly earnings were better than expected over the last two quarters climbing to a level last seen in 2006. The RBNZ remains under pressure to tighten policy in the near term.
The risk-sensitive NZD asset also derived its strength from the broad-based dollar weakness as investors continued to cut their bullish bets on the dollar. A rally in commodity prices has also boosted the NZD strength as optimism comes from China’s easing of lockdown measures.
The Sunday spike in Covid cases remains a major headwind of the NZDUSD bulls and the rally may soon be exhausted.
Investors will be looking forward to Wednesday’s Fed meeting minutes for clues on the Fed policy tightening review as inflation peaks.
The US will also release Personal Income and Spending data ( Core PCE price index) on Friday. The survey suggests better than expected spending despite soaring inflation in April.
The NZDUSD bulls rallied after breaching the 0.6400 area as bulls target the 0.6540 area. The bullish outlook can be confirmed by the closing of price above the Bollinger Band baseline (yellow). A break above the 0.6540 area may open room for further upside gains towards the 0.7000 high, coinciding with April 2022 high.
The MACD volume bars indicate a reading above the 0.0000 benchmark, marking the beginning of a fresh bullish run.
However, bulls may need to defend the 0.6400 area to maintain a bullish outlook. A failure to hold above that support may see the price revisiting the 0.6200 support.
ActivTrader’s Sentiment tool shows that 55% of the retail traders are now long on the NZDUSD as the price approaches the 0.6500 psychological figure. Chinese easing of lockdown measures remains a major tailwind for the NZDUSD buyers as commodity demand renewal will impact supply chains in the near term.
The NZDUSD is extremely bullish on the h4 chart as bulls target the 0.6570 high. The Williams Alligator shows that the pair has a strong corrective pattern to the upside as the moving averages act as dynamic support for the pair in the near term. The 0.6425 remains short-term support coinciding with the Williams Alligator.
However, the RSI indicator reading is at 80.00 showing that the current trend is reaching an overbought area and the trend is susceptible to sharp price retracement. A failure to hold above the 0.6370 may cause selling pressure on the pair towards the 0.6200 support.