Basic Overview
Yesterday, the US PPI report came in below expectations by a wide margin, leading to a sell-off in the US dollar as the market began to prepare for a potentially weak US CPI release today.
This led to a major breakout in the NZD/USD pair, which was short-lived as the Reserve Bank of New Zealand cut interest rates by 25 basis points tonight. While analysts and economists were expecting the official cash rate to remain unchanged, the market was pricing in a greater than 70% chance of a rate cut.
Among the factors that weighed on the New Zealand dollar was the central bank’s more dovish than expected outlook for future interest rate setting.
For the Fed, the market is split between a 25-50 basis point cut in September and a total of 107 basis points of easing by the end of the year. On the RBNZ side, the market is expecting a 25 basis point cut in October and a total of 71 basis points of easing by the end of the year.
NZDUSD Technical Analysis – Daily Time Frame
NZDUSD Daily Currency Pair
On the daily chart, we can see that the NZDUSD pair tested the key resistance area around the 0.6050 level yesterday after the weak US PPI report but took a big hit tonight after the RBNZ interest rate cut.
Sellers have piled risk above resistance to position themselves for a bearish move to lows around the 0.5850 level. Buyers will want to see the price rise back above resistance to increase bullish bets and position themselves for a move to the 0.6217 level after that.
NZDUSD Technical Analysis – 4-hour timeframe
NZDUSD 4 hours
On the 4-hour chart, we can see that we have a minor support area around the 0.5980 level where the price has been rejected several times in the past weeks. If we get a pullback all the way to the support, buyers are likely to step in with a defined risk below the support to position for a break above the major resistance with a better risk-reward setup. On the other hand, sellers will want to see the price drop to increase bearish bets to the 0.5850 level.
NZDUSD Technical Analysis – 1-Hour Timeframe
NZDUSD 1 hour
On the 1-hour chart, we can see that the price has fallen to the lower end of the average daily range for the day. The price generally does not extend beyond the range unless there is a strong catalyst.
This catalyst could be the hot US CPI report today, which could push the price to the 0.5980 support area. For now, buyers are relying on the minor uptrend line to pave the way for a rise to new highs.
Upcoming incentives
Today we have the US CPI report. Tomorrow we get US retail sales and jobless claims. And finally, on Friday, we wrap up the week with the New Zealand Manufacturing PMI and the University of Michigan Consumer Sentiment Survey.