When NZD/USD broke 0.7302 then its 14 year average at 0.7283 last Thursday, its most significant test for continued losses or a 55 pip range scenario occurred below at 0.7228. Thursday’s overall 66 pip trade day held NZD/USD’s decision.
Editorially, NZD/USD is a terrific and trade able currency pair yet its a highly contained pair due first to its challenge to maintain its position after American markets close between USD and its close cousin AUD.
The second test for NZD to maintain its own character separate from USD and AUD is to set the Asia trading standard as NZD provides, based on its money market system, determination to a volatile or range bound Asia trade condition.
A volatile or range-trade American market is irrelevant to assess Asia trade conditions as NZD determines the final judgement to protect its currency price. AUD becomes the follower as second in line in the G10 space yet overall AUD is irrelevant as AUD rarely leads any currency pair.
The containment and protection example is seen within the context of break points. To travel higher, NZD/USD must break 0.7228 but 0.7228 faces a continued test higher by further breaks at 0.7232 then 0.7257. While NZD/USD broke below 0.7228 Friday, the vast majority of trade occurred around 0.7228 since Friday.
A break of 0.7257 would only travel to 0.7280 range top and 3 pips below the 14 year average at 0.7283. In the way to 0.7280 is a break point at 0.7270.
The range-top informs 0.7283 will hold into today’s RBNZ decision.
Further above and most significant is the 5 and 10 year averages at 0.7469 and 0.7418. A break of 0.7257 then 0.7302 becomes the next level and the 5 and 10 year averages are well protected by 0.7322 and 0.7343.
A break of 0.7302 then NZD can only travel 20 and 41 pips to its next break points.
Viewed from the larger overall range from 0.6999 to 0.7515, NZD trades in small parameters within the context of the larger range system. NZD is well protected by a market implosion. At 0.7228 can only travel higher to 0.7270, 0.7280 and 0.7283.
NZD below can only travel to 0.7187, 0.7177, 0.7168, 0.7133 then a massive drop to 0.7010 and upon a break at 0.7010 won’t occur but a break opens the flood gates to the range bottom at 0.6999 and 0.6849 then 0.6727. Most challenging in days and weeks ahead is 0.7168 and 0.7133 bottoms.
Overall, NZD/USD’s price is far to high and contains potential for a deep drop but this will take some time.
Brian Twomey