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The New Zealand dollar is tumbling against the US dollar this morning, following bearish news surrounding housing in New Zealand. The kiwi has tumbled to its weakest level in over three months and is starting to test towards the 0.7100 support zone.
Major floods in Australia, and government scandals are also hurting the sentiment towards antipodean currencies this week. And to a lesser extent, weakness in regional stocks, such as China and the ASX200 is also harming the kiwi.
News that the New Zealand government will implement new measures to curb house price rises is the main culprit behind the decline in the NZDUSD pair. Traders and investors believe this could be dovish for New Zealand rates, and cause rates to hold lower for longer.
A bearish head and shoulders pattern has also been activated and is currently warning of a potential 300-point drop, which could take the NZDUSD pair back towards its 200-day moving average for the first-time since June last year.
The New Zealand government has pledged to hit investors with higher taxes and increase housing supply. Shorter dated bond yields have risen on the news, as the measure will take pressure off the RBNZ to hike rates any time soon.
Oil prices are also on the slide again today, alongside precious metals. Antipodean currencies such as the New Zealand and Australian dollar are therefore both under pressure intraday due to their strong correlation with commodities.
According to the ActivTrader market sentiment tool some 57 percent of traders are bearish towards the NZDUSD pair. Considering that the pair has seen a strong pullback it appears that bears are currently on the right side of the market.
The sentiment skew towards the NZDUSD pair is not too large at present and could suggest that further losses are possible. I would become nervous if bearish sentiment started to dramatically increase.
NZDUSD Short-Term Technical Analysis
The four-hour time frame shows that a small head and shoulders pattern has been activated, following today’s strong break below the 0.7100 support level.
According to the overall size of the bearish price pattern a drop of around 170 points could be about to happen, placing the 0.6930 level in focus as a potential bearish target.
Watch out for further heavy losses in the NZDUSD pair while the price continues to hold below the 0.7100 level.
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NZDUSD Medium-Term Technical Analysis
Looking at the daily time chart it appears that an extremely large bearish head and shoulders pattern has been activated, following the recent drop under the 0.7165 level.
The pattern is warning of a potential 300-point drop in the NZDUSD pair. This places the NZDUSD pair’s 200-day moving average as a potential upcoming bearish price target, around the 0.6860 support level.
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