Kicking off the new week with a simple downtrend setup on NZD/USD!
Risk sentiment is leaning negative to early, prompting early broad USD strength. Will major catalysts ahead from both the U.S. and New Zealand keep the trend going or mark the short-term bottom?
In our latest Event Guide, we covered the upcoming interest rate statement from the Reserve Bank of New Zealand.
Market expectations are for the RBNZ to hold interest rates at 5.50%, but there is some uncertainty on the actual statement. Forex traders are on the look out for what rhetoric may get on future interest rate decisions and how the RBNZ may view recent economic developments in New Zealand. This uncertainty means that we may see a pretty solid spike in volatility once the event plays out.
The Event Guide also touched upon a couple of broad risk sentiment environment scenarios we may see, and it looks like a risk aversion lean is playing out today, mainly due to headlines from China this morning that discussed growing contagion risks from the property sector. This has pushed NZD/USD lower early in the week, but it looks like today’s move is already running out of steam.
So, a technical bounce may be in the cards for NZD/USD, with the odds of the bounce rising if we see net better-than-expected economic updates from the upcoming China data dump (Tuesday, 2am GMT).
If that scenario plays out and NZD/USD rallies higher on Tuesday, we’ll be watching the technical area of interest marked on the 1-hour chart above. It is a confluence of a broken support area on the 1-hour chart above (roughly around the 0.6050 minor psychological level), Fibonacci retracement levels, falling moving averages, raising the odds of drawing in technical sellers.
If U.S. retail sales data sparks broad risk aversion sentiment and if we see rhetoric from the RBNZ signal more concerns over economic conditions vs. stick high inflation, then that’s a strong enough argument to consider a potential risk management plan on NZD/USD if bearish reversal patterns develop around the technical area of interest discussed above.
Of course, the RBNZ interest rate statement is a top tier event and there are other potential scenarios that may develop, so be sure to take a minute to read Event Guide: RBNZ Monetary Policy Statement August 2023 to be aware of all of the factors that may influence Kiwi price action this week before creating a risk management plan!
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