New Zealand Dollar Outlook:
- Technical weakness is gathering pace among the major NZD-crosses.
- NZD/JPY rates have reversed their bullish breakouts, while NZD/USD rates have established a fresh yearly low ahead of the September Fed meeting.
- Nevertheless, according to the IG Client Sentiment Index, the New Zealand Dollar has a mixed bias in the near-term.
Recommended by Christopher Vecchio, CFA
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A turn lower by commodity prices has lead to a deterioration in New Zealand terms of trade in recent weeks, rekindling a fundamental headwind for the New Zealand Dollar. Coupled with a general risk-off tone permeating global financial markets, the high yield commodity currency has struggled as the calendar has turned through the middle of September. Against the backdrop of weak seasonality tendencies in recent years, the New Zealand Dollar is on precarious ground ahead of the September Fed meeting.
NZD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (September 2021 to September 2022) (CHART 1)
NZD/JPY rates attempted breakout from two bullish continuation patterns – the range that formed since early-June, and the symmetrical triangle that began in early-April – appears to have failed. Momentum is bearish. NZD/JPY rates are below their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Daily MACD is trending lower on the verge of crossing below its signal line, while daily Slow Stochastics are nearing a move into oversold territory. The return into the consolidations begets an expectation that the pair will return to support: for the triangle, that comes closer to 84.00; for the range, support is near 83.00.
NZD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (September 2021 to September 2022) (CHART 2)
In late-August, it was noted that “a move above the confluence of Fibonacci retracements (61.8% of 2020 low/2021 high at 0.6231 and 23.6% of 2014 high/2020 low at 0.6264) coupled with a return above the daily 21-EMA (one-month moving average) would give credence to a short-term bottom having developed.” This never occurred. Instead, NZD/USD rates continued lower, and today, established a fresh monthly and yearly low. Having broken the 76.4% retracement of the 2020 low/2021 high, the next level of support arrives at the April 2020 low at 0.5843.
IG Client Sentiment Index: NZD/USD RATE Forecast (September 20, 2022) (Chart 3)
NZD/USD: Retail trader data shows 72.03% of traders are net-long with the ratio of traders long to short at 2.58 to 1. The number of traders net-long is 5.63% higher than yesterday and 30.03% higher from last week, while the number of traders net-short is 5.56% lower than yesterday and 45.71% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZD/USD prices may continue to fall.
Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed NZD/USD trading bias.
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— Written by Christopher Vecchio, CFA, Senior Strategist