© Filipe Frazao, Adobe Stock
- NZD/USD now in the sell-zone
- Channel resistance to cap gains
- RBNZ rate cut was the catalyst
The New Zealand Dolla recovered earlier losses on Thursday and Friday this week after the market began to question some of the dovish assumptions underpinning Tuesday's steep sell-off, but studies of the charts suggest further weakness could be likely in the days ahead.
Although the Reserve Bank of New Zealand (RBNZ) had cut interest rates by 0.25% at its meeting on Wednesday, the governor of the RBNZ made no mention of further cuts, which went against market assumptions the Bank was entering into a dovish easing cycle.
From a technical perspective, the ease-up in selling on Thursday brought the exchange rate back up into the sell-zone.The pair is now at the top of a descending channel and has formed an indecisive doji candlestick at the upper borderline. This is a bearish technical setup overall.
“So with the rebound yesterday is this another chance to sell?” asks Richard Perry, an analyst at FX broker Hantec Markets. “The trend channel comes in to provide resistance at $0.6620 meaning there is a near term sell zone between $0.6590/$0.6620.”
Above: NZD/USD rate chart. Source Hantec Markets.
Perry notes how the failure of “an early rebound this morning” at $0.6613 supports the notion that the exchange rate is bumping up against overhead supply and that we are still in a seller's market.
Momentum indicators, which are used by market analysts to provide supplementary confirmation for the direction of the dominant trend, are also pointing toward further losses. This means rallies within the channel are are selling opportunity, according to Perry.
Perry says rallies have repeatedly failed when the relative-strenth-index indicator has been between 40 and 45. With the RSI now in the mid-30s area, Perry says there's a chance that sellers could soon regain control of the market.
He predicts the losses prompted by the RBNZ rate cut will eventually see the low at $0.6525 retested. Below that the next target level for bears to set their sights on could be the October lows at $0.6420.
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