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NZD/USD: Sell The Rumour, Buy The Fact?

Published 06/10/2014, 03:06 AM
Updated 07/09/2023, 06:31 AM

With traders shorting the Kiwi Dollar for the past month prior to Thursday's rate decision, is this a case of 'sell the rumour - buy the fact'?

SUMMARY:

- I expect sideways trading until the rate decision and for a 25bps rise in rates to bring them to 3.25%.
- This should see NZD/USD break up through 0.852 and target 0.864 and eventually 0.87 highs.
- Fundamentally, still strong. I do not expect 'jaw-boning' from RBNZ and for NZD/USD to become bullish after Thursday.
- Talk of intervention to bring down NZD would have a more bearish impact upon NZD than not raising rates.
- 0.840 is a pivotal swing low for NZD/USD to return to the bullish trend.
NZD/USD Daily Chart

Despite the fact the RBNZ are paying the highest interest rates among G10 currencies, traders have continued to short NZD when the RBNZ hinted the rate hikes may not be aggressive as previously thought. They also talked of potential intervention by shorting NZD if the overpriced Kiwi Dollar remains among poor fundamental data. The price has been within a steady downtrend for the past month until it reached 0.840. 

0.840 is a key level of support which was successfully defended following last Thursday's' ECB meeting, and the greenback sell-off. NZD/USD posted its single largest day gain since March '14, respecting the 200-day eMA and closing the week with a Spinning Top Doji to warn of a weakness the sell-off from the May Highs. 

Friday and Monday produced 2 failed attempts to break above 0.8517 resistance, however the price continues to hover around the 0.850 handle and I expect this sideways trading to continue leading up to the release. 

NZD/USD 4-Hour Chart

If we do break above 0.8520 then we have resistance close by around 0.857 which I expect to hold upon first attempt, so ideally we will see basing patterns above 0.850 and for buying pressure to increase whilst the trend is established. 

COUNTER-BIAS

A break below this week's range should target 0.843 and 0.840, with a break below 0.840 being quite bearish for the Kiwi and would allow losses to gain momentum. For this scenario, we would have to keep rates fixed at 3% and strengthening talk of NZD intervention.

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