New Zealand Dollar Technical Analysis: NZD/JPY, NZD/USD Rate Outlook

New Zealand Dollar Outlook:

  • Technical weakness is accelerating among major NZD crosses.
  • NZD/JPY rates reversed their bullish pushes, while NZD/USD rates set a new yearly low ahead of the September Fed meeting.
  • Nevertheless, according to IG Customer Opinion Indexthe New Zealand dollar has a short-term mixed bias.

Recommended by Christopher Vecchio, CFA

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The deterioration continues

A drop in commodity prices has caused New Zealand’s terms of trade to deteriorate in recent weeks, reigniting a fundamental headwind for the New Zealand dollar. Coupled with a general risk-averse tone that pervades global financial markets, the high-yield commodity currency struggled as the calendar turned to mid-September. In the context of weak seasonality trends in recent yearsthe New Zealand dollar is in shaky ground ahead of the Fed’s September meeting.

NZD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (September 2021 to September 2022) (CHART 1)

NZD/JPY rates have attempted to break out of two bullish continuation patterns – the range that has formed since early June and the symmetrical triangle that began in early April – appear to have failed. The momentum is bearish. NZD/JPY rates are below their 5, 8, 13 and 21-EMA daily envelope, which is in bearish sequential order. The daily MACD is trending down about to cross its signal line, while the daily Slow Stochastic is about to move into oversold territory. The move back into the consolidations creates an expectation that the pair will return to support: for the triangle, this is approaching 84.00; for the range, support is near 83.00.

NZD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (September 2021 to September 2022) (CHART 2)

At the end of August, it was noted that “a move above the confluence of Fibonacci retracements (61.8% from the 2020 low/2021 high at 0.6231 and 23.6% from the 2014 high/2020 low at 0.6264) coupled with a return above the daily 21-EMA (one-month moving average) would lend credence to a short-term bottom that developed. It never happened. Instead , NZD/USD rates continued to decline and today set a new monthly and yearly low.After breaking the 76.4% retracement of the 2020 low/2021 high, the next level of support comes in at the April 2020 low at 0.5843.

IG Customer Confidence Index: NZD/USD Rate Forecast (September 20, 2022) (Chart 3)

NZD/USD: Retail trader data shows 72.03% of traders are net long with a ratio of long to short traders of 2.58 to 1. The number of net long traders is 5.63% higher than that of yesterday and 30.03% higher than last week, while the number of net-short traders is 5.56% lower than yesterday and 45.71% higher than last week .

We generally take a contrarian view of crowd sentiment, and the fact that traders are net buyers suggests that NZD/USD prices may continue lower.

Positioning is longer than yesterday but shorter since last week. The combination of current sentiment and recent changes gives us another mixed NZD/USD trading bias.

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— Written by Christopher Vecchio, CFA, Senior Strategist

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