New Zealand Dollar Technical Outlook: Medium-Term NZD/USD Prospects Improving

NZD/USD, NEW ZEALAND DOLLAR – Technical Outlook:

• While the upward momentum in NZD/USD has slowed recently, it remains intact.
• The odds are growing that the worst in NZD/USD could be over.
• What are the key levels to watch?

NZD/USD SHORT-TERM TECHNICAL FORECAST – NEUTRAL

Wednesday’s drop in the New Zealand dollar against the US dollar could be short-lived.

NZD/USD fell after New Zealand’s fourth-quarter inflation rose less than what the Reserve Bank of New Zealand (RBNZ) had forecast. CPI rose 7.2% on-year in the fourth quarter, slightly above analysts’ expectations of 7.1%, but below RBNZ’s forecast of 7.5%. The data lead to a modest trimming in RBNZ rate hike expectations in February, though remains fully priced for a 50 basis points move.

NZD/USD Daily Chart

Chart Created Using TradingView

On technical charts, NZD/USD’s outlook has been improving since October after it held above strong support at the 2020 low of 0.5465. Furthermore, the subsequent rebound has fully recouped the August-October loss – the last ‘supply’ point. In general, when a market is able to fully retrace the last supply point, it tends to indicate exhaustion in selling pressure. In such instances, the path of least resistance tends to be sideways to up.

NZD/USD Weekly Chart

Chart Created Using TradingView

Most recently, the upward momentum has slowed as NZD/USD has run into stiff converged resistance: the December high of around 0.6500, the 89-week moving average, slightly below the 200-week moving average (at about 0.6610). While short-term prospects for a range remain intact for now, any break above the resistance area would be bullish. Such a break would trigger a reverse head & shoulders pattern (the left shoulder is the July 2022 low, the head at the October low, and the right shoulder at the early-January low), pointing a rise toward the 2021 high of 0.7465.

On the downside, there is immediate support at the early-January low of 0.6190, followed by the early-November high of 0.6000. Upward pressure is unlikely to ease while NZD/USD holds above 0.6000.

— Written by Manish Jaradi, Strategist for DailyFX.com