Key Points: -
· The NZD/USD pair shows a recovery on Thursday, breaking a four-day losing streak that brought it to a one-week low.
· Expectations of a less hawkish stance from the Federal Reserve put downward pressure on the US Dollar and provide some support to the pair.
· Concerns over China's economic challenges, US-China tensions, and geopolitical risks could limit the upside potential for the risk-sensitive New Zealand Dollar (Kiwi).
Today's Scenario: -
The NZD/USD pair is continuing its bounce from a one-week low and showing strong positive momentum during the Asian session on Thursday. The spot prices have reached a fresh daily high, hovering around the 0.6300 mark, and appear to have halted a four-day corrective decline from the highest level since February.
The US Dollar (USD) is facing renewed selling pressure as the markets are scaling back expectations of further rate hikes by the Federal Reserve (Fed) after the anticipated 25 bps lift-off in July. This serves as a supportive factor for the NZD/USD pair. Meanwhile, the New Zealand Dollar (NZD) is being supported by robust domestic consumer inflation figures released on Wednesday, indicating a 1.1% rise in the headline CPI during the second quarter, exceeding the 1% estimate.
Additionally, the yearly rate's deceleration to 6% during the reported period was less than expected, leading investors to price in a more hawkish stance by the Reserve Bank of New Zealand (RBNZ). Furthermore, the overall bullish sentiment in global equity markets is benefiting the risk-sensitive NZD. However, concerns over China's economic growth slowdown and escalating US-China tensions could restrict further appreciation of antipodean currencies, including the Kiwi.
It is essential to note that recent data showed a significant deceleration in China's economic growth during the second quarter, along with a sharp slowdown in retail sales in June. China's ambassador to Washington also expressed China's reluctance to engage in trade or tech wars but warned of possible responses if the US imposes more restrictions on chip-making equipment imports. Geopolitical risks may restrain optimism in the NZD/USD pair, at least for the time being.
Furthermore, caution is warranted for aggressive bullish traders looking for a resumption of the NZD/USD pair's strong recovery from the year-to-date low, which was slightly below the psychological level of 0.6000, recorded in June. Recent developments in Russia's stance towards Ukraine also contribute to cautious sentiment.
Market participants are now focusing on US macroeconomic data, including Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales, which are due later during the early North American session. These data points, along with overall risk sentiment, will impact USD price dynamics and offer short-term trading opportunities around the NZD/USD pair.
Diagram of NZD/USD: -
Economic Events: -
Buy Scenario: -
if the bullish momentum persists, the price might encounter resistance at 0.6305, which is an overlap resistance level aligning with the 38.2% Fibonacci retracement. In the event that the price surpasses this level, the next challenge could come from the 2nd resistance level at 0.6403, identified as a swing high resistance. These resistance levels may potentially impede the price's upward movement. Till we do not advise to buy NZD/USD.
Sell Scenario: -
The NZD/USD pair is currently trading with clear positivity, approaching the 0.6290 level and attempting to hold above it. This suggests a potential return to the main bullish trend. However, we recommend staying on the sidelines until the price confirms its situation by clearly breaking above the mentioned level and determining its next direction.
If the price successfully breaches the 0.6290 level, it is likely to achieve further gains, targeting levels around 0.6400 and extending up to 0.6530.
On the other hand, if the price consolidates below the 0.6290 level, it may resume its correctional bearish trend, with downside targets at 0.6205, followed by 0.6140 levels. Till we do not advise to sell NZD/USD.
Support and Resistance Level: -
S1 0.6214 - R1 0.6324
S2 0.6165 - R2 0.6384
S3 0.6105 - R3 0.6433