A not-so-hawkish RBNZ decision dragged the New Zealand dollar lower earlier today.
NZD sellers have since taken a chill pill, though. Will the pause provide a break-and-retest setup for NZD/USD players?
Here’s what we’re looking at in the 1-hour time frame:
NZD/USD 1-hour Forex Chart by TV
Earlier today, the Reserve Bank of New Zealand (RBNZ) kept its interest rates at 5.50% for a fourth meeting in a row.
While the decision is widely expected, some traders had expected at least a bit more hawkishness from the central bank. The RBNZ didn’t change their statement much compared to the previous meeting even though its members believe that there’s a “near-term risk that activity and inflation would not slow as much as expected.”
What’s up with that?!
NZD/USD, which had already broken an observable trend line support, spiked lower and bust below its S1 (.5910) Pivot Point support.
How low can NZD/USD go?
If the RBNZ Event Guide is any clue, we may see some pullback from today’s moves. The article suggested that NZD may lose pips in a buy-the-rumor, sell-the-news situation.
Meanwhile, today’s U.S. ADP and ISM services PMI reports are expected to print lower numbers compared to last month’s readings. Keep in mind that both reports are considered leading indicators for Friday’s closely watched U.S. NFP release.
If we do see disappointing U.S. data, then the Fed will have fewer reasons to sustain its uber-hawkish biases. This may then likely limit further USD gains, at least for the day.
Last but not least, NZD/USD may see some profit-taking after the previous days’ downswing. Heck, the pair has already fallen by at least half of its daily average volatility!
A move to and then a rejection at the .5910 – .5925 previous support zone opens NZD/USD to possibly starting a downtrend. The .5880 previous low is a pretty good target but the pair can see new monthly lows if the markets go back to aggressively buying USD again.
What do you think? Will NZD/USD pull back before trading even lower? Or will it make new monthly lows without looking back?
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