NZDUSD has been steady, except for the big break and recovery in the fall of 2022. The Reserve Bank of New Zealand has been hawkish for months, raising rates to 5.25 with fast-paced 50-point hikes. Now, perhaps it is very close to the terminal rate for the year. Markets expect one more hike and hold from the RBNZ, which is reasonable because the manufacturing PMI has started to show some weakness and has fallen below 50 again, indicating a downtrend. The fall in activity could be a concern if the current trajectory continues, but it is not too much of a concern at the moment. Next week’s CPI release will be crucial. The CPI is expected to fall to 7% from 7.2%, which is still very high and may cause the RBNZ to upset the markets at the next meeting if it comes in above expectations.
The 10-year yield is aware of the risks and has been staying above the 3.92% support level for almost eight months now. As long as this support holds, the NZD may have an advantage over the USD in the coming weeks.
The downtrend that began in early 2021 is still ongoing despite the recent sharp fall in the dollar index. However, over the past year, NZDUSD has been moving sideways between 0.6050 and 0.6575. Currently, the momentum seems to be shifting in favor of the kiwi. The 200-day moving average’s slope has turned positive after a long time and is now acting as a support. In the short term, the Relative Momentum Index is showing a shift in momentum towards the NZD. There is still a lot of ground for the NZD to catch up on. Unless there is a break below the 200-day moving average and 0.6050, NZDUSD may test the infamous 0.6575 resistance that has been approaching the long-term downtrend and will reach in a matter of weeks. If the FED begins to slow down this year, even a breakout could be possible this year.
