NZD/USD Momentum Shifted to Downside Early Tuesday

The New Zealand Dollar is edging higher on Tuesday after posting a steep sell-off the previous session. Wild swings in crude oil prices coupled with the shedding of riskier assets encouraged Kiwi traders to book profits after a seven day rally helped drive the currency to its highest level since November 24 the previous session.

At 10:00 GMT, the NZD/USD is trading .6834, up 0.0010 or +0.15%.

Due to the ongoing war in Ukraine and the turmoil in the commodity markets, growth is now expected to be lower, while inflation will be markedly higher.

In order to counter the rise in inflation, ANZ now says the Reserve Bank of New Zealand (RBNZ) will have to hike its 1.0% cash rate by 50 basis points at both its April and May policy meetings. The NZD/USD was pressured, however, because futures traders are pricing in a 50-50 chance of a half-point move in April, and only see rates around 1.70% in May.

The uncertainty over the size and frequency of rate hikes by the RBNZ should be the source of volatility for the New Zealand Dollar over the near-term.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower following the confirmation of Monday’s potentially bearish closing price reversal top.

A trade through .6926 will negate the closing price reversal top and signal a resumption of the uptrend. A move through .6631 will change the main trend to down.

The long-term range is .7219 to .6528. Its retracement zone at .6874 to .6955 is resistance. This zone stopped the selling on Monday at .6926.

The first minor range is .6631 to .6926. Its 50% level at .6778 is the next downside target and possible support.

The short-term range is .6529 to .6926. If the minor pivot fails then look for the selling to extend into its retracement zone at .6727 to .6681.

Daily Swing Chart Technical Forecast

The direction of the NZD/USD into the close on Tuesday is likely to be determined by trader reaction to .6864.

Bearish Scenario

A sustained move under .6864 will indicate the presence of sellers. If this move creates enough downside momentum then look for a move into .6778.

Watch for a technical bounce on the first test of .6778. If it fails as support, however, the selling pressure could possibly extend into the short-term retracement zone at .6727 to .6681.

Bullish Scenario

A sustained move over .6864 will signal the presence of buyers. This could trigger a quick rally into the main 50% level at .6874. Overcoming this level will indicate the buying is getting stronger with .6926 the next likely target. Taking out this level could trigger a fast rally into the main Fibonacci level at .6955.

Side Notes

Monday’s closing price reversal is not a change in trend, but it could trigger the start of a 2-3 day sell-off with .6727 to .6681 the primary downside target.

The first break from a top is usually long liquidation. The second break will be fueled by new short sellers entering the market.