James Hyerczyk
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The New Zealand Dollar is trading sharply higher late Wednesday after the safe-haven appeal of the U.S. Dollar appeared to wear off as risk appetite made a comeback with stocks higher, although investors remained cautious amid inflation fears and concerns about the highly-contagious coronavirus variant.

At 20:28 GMT, the NZD/USD is trading .6971, up 0.0052 or +0.75%.

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Wednesday’s rally has all the markings of a short-covering rally triggered by the dumping of the U.S. Dollar. We’re going to continue to monitor the interest rate differential and the financial futures for clues as to when the real buyers are active.

The NZD/USD could turn bullish if financial futures traders start to show some confidence in the expected rate hike by the Reserve Bank in August. Last week, the odds of a 25 basis point rate hike sat at 90%. But because of the possible impact of the coronavirus outbreak on the economy, traders have lowered the chances of an August rate hike to 62%. They feel these new virus-related developments may encourage policymakers to take a step back and reassess the strength of the economy.


Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6881 will signal a resumption of the downtrend. The main trend will change to up on a trade through .7045.

The minor trend is also down, but Wednesday’s price action turned .6881 into a new minor bottom.

The NZD/USD is currently trading inside a major retracement zone at .6924 to .7027. This zone is controlling the longer-term direction of the Kiwi.

The minor range is .7045 to .6881. On Wednesday, the NZD/USD tested its retracement zone at .6963 to .6982. Trader reaction to this zone is likely to set the tone for the rest of the week.


Daily Swing Chart Technical Forecast

The direction of the NZD/USD early Thursday is likely to be determined by trader reaction to the minor 50% level at .6963.

Bullish Scenario

A sustained move over .6963 will indicate the presence of buyers. The first upside target is the minor Fibonacci level at .6982. Taking out this level could trigger an acceleration to the upside with .7027 the next likely target, followed closely by the main top at .7045.

Bearish Scenario

A sustained move under .6963 will signal the presence of sellers. If this move creates enough downside momentum then look for a sharp break into the long-term Fib at .6924, followed by the minor bottom at .6881.

Taking out .6881 will indicate the selling pressure is getting stronger with the November 13, 2020 main bottom at .6811 the next likely target.

For a look at all of today’s economic events, check out our economic calendar.
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