NZD/USD – Double blow piles pressure on support

RBNZ catches market off guard

Two months of consolidation has made things a little dull for the NZD/USD pair and that looked to be coming to an end until a new Covid outbreak brought everything to a halt.

The delta strain has many concerned and New Zealand has taken a tough stance since the start of the pandemic – successfully so – which makes the decision far from surprising.

What may have come as a surprise was the RBNZ decision to grind its tightening cycle to a corresponding halt before it’s even started. While conditions for a hike remain, the RBNZ is in no rush to raise rates during this period of uncertainty.

At least one more hike this year is the aim, with rates rising to 2% next year. Of course, Covid will have a big say in whether the central bank can deliver on this.

With the country in lockdown and central bank not hiking, it’s no surprise we didn’t see a break of 0.71 that could have led to further gains as the RBNZ led the G10 in tightening monetary policy .

Instead it’s 0.69 that looks vulnerable and, in fact, we’re currently trading just below here.

A look at the 4-hour chart MACD and stochastic suggests there isn’t much downside momentum at these levels, which given their significance as support, isn’t a good sign.

Of course, the flip side is that if we can see a significant breakout, it will carry the surprise factor and likely trigger a lot of stops, exacerbating any initial move.

Instead, the pair looks more likely to continue to range trade for now and we’re left to assess the threat of the latest breakout and whether the lockdown will be brief, as planned. At which point, the rate hike odds will likely increase and NZD should see support once more.

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