NZD/USD: Testing Key Retracement Zone at .6782 – .6722

The New Zealand Dollar closed lower ahead of a long holiday weekend on Friday. Additionally, the currency ended the volatile, bearish week with three consecutive lower closes.

Although the Reserve Bank of New Zealand (RBNZ) raised rates 50 basis points earlier in the week as expected, the Kiwi was pressured by some traders who believe an aggressive Federal Reserve will offset the additional rate hikes expected by the RBNZ.

On Friday, the NZD/USD settled at .6760, down 0.0027 or -0.40%.

Will Aggressive RBNZ Rate Hikes Cause Economic Slowdown?

The RBNZ Official Cash Rate (OCR) is now at 1.5% after the half-point hike on Wednesday, and futures imply the peak there could be around 4%. Yet the Kiwi actually fell on the news with investors worried about the Fed and what such radical domestic tightening would do to the economy.

“The market reaction suggests that investors are already starting to think about the end of the tightening cycle,” said Jonas Goltermann, a senior economist at Capital Economics.

“We think higher rates will bring down house prices and lead to an economic slowdown, so we would not be surprised if expected interest rates struggle to rise much further, Goltermann added.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the main bottom at .6729 will reaffirm the downtrend. A move through .6902 will change the main trend to up.

The main range is .6529 to .7034. The NZD/USD is currently trading inside its retracement zone .6782 to .6722. This area is controlling the near-term direction of the Forex pair.

On the upside, the nearest 50% level resistance is .6833, followed by a long-term retracement zone at .6874 to .6955. Inside this zone is a minor pivot at .6895.

Short-Term Outlook

Trader reaction to the 50% level at .6782 will determine the direction of the NZD/USD early Monday.

Bearish Scenario

A sustained move under .6781 will indicate the presence of sellers. A trade through .6755 will indicate the selling pressure is getting stronger. This could trigger a sharp break into the main bottom at .6729, followed by the Fibonacci level at .6722. This price is a potential trigger point for an acceleration to the downside with .6631 the next likely target.

Bullish Scenario

Sustaining a rally over .6783 will signal the presence of buyers. This rally could generate the upside momentum needed to challenge the 50% level at .6833.

Side Notes

Traders should look for another low volume session on Monday due to a bank holiday in New Zealand.