NZD/USD Starts Week Inside Window of Time for Reversal

The New Zealand Dollar fell to a multi-year low on Friday as traders rushed to price in ever more U.S. rate hikes, battering bonds and sending short-term yields to their highest in almost three years.

The drubbing of the Kiwi came after Federal Reserve Chair Jerome Powell took a decidedly hawkish tone after their policy meeting earlier in the week, refusing to rule out hiking rates at every one of their remaining seven meetings this year.

On Friday, the NZD/USD settled at .6542, down 0.0040 or -0.60%.

The Reserve Bank of New Zealand (RBNZ) has already raised rates twice and is considered certain to hike again later this month, with some chance it might move by 50 basis points (bps) after inflation jumped to a three-decade peak.

The market expects the RBNZ to continue to lift the cash rate at least another seven times to 2.5% by mid-2023, but this week’s price action indicates traders expect the Fed to be more aggressive.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6529 will signal a resumption of the downtrend early Monday.

A trade through .6891 will change the main trend to up. This is highly unlikely, but due to the prolonged move down in terms of price and time, the NZD/USD will begin Monday’s session inside the window of time for a potentially bullish closing price reversal bottom.

The minor trend is also down. A trade through .6811 will change the minor trend to up and shift momentum to the upside.

Short-Term Outlook

Since the market was under so much pressure on Friday, the early direction of the NZD on Monday will likely be determined by trader reaction to .6529.

On the bearish side, a trade through .6529 could create the momentum needed to challenge the September 24, 2020 main bottom at .6512 and the August 20, 2020 main bottom at .6489. If both of these bottoms fail then look for the selling to possibly extend into the long-term 50% level at .6467.

If .6529 holds and buyers are able to take out .6590 then this will signify a minor shift in the chart pattern. If this generates enough upside momentum then look for the short-covering rally to possibly extend into the minor pivot at .6670 over the near-term.