New Zealand Dollar Boosted by Low Volatility; What’s Next for NZD/USD, AUD/NZD, EUR/NZD?

By Investor Empires On Jun 12, 2023

New Zealand Dollar vs US Dollar, Australian Dollar and Euro – Overview:

New Zealand dollar / US dollar It has been supported by a recent improvement in risk appetite.
EUR/NZD Crowd looks tired.
Do Australian / New Zealand dollars Raleigh has legs from a mid-range perspective?

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The suspension of the US debt ceiling, the resilience of the global economy, and hopes that US interest rates will peak have boosted risk-sensitive currencies, including the New Zealand dollar.

Volatility has fallen across asset classes over the past two weeks, with stock market volatility, as measured by the CBOE VIX, reaching its lowest level since the Covid sell-off in 2020. Currency volatility, as measured by CVIX, is at its lowest level in more than a year ( See chart).

volatility indicators

Source data: Bloomberg; The chart was created in Microsoft Excel.

The improvement in risk sentiment has sent NZD/USD up over 1% since the start of the month. The New Zealand dollar fell sharply late last month after the Reserve Bank of New Zealand (RBNZ) raised interest rates by 25 basis points, but acknowledged that rates are at a peak. For more details, see “NZD Slides as RBNZ Climbs 25 bps, But Sees Price Peak,” posted on May 24.

NZD/USD: holding above the key support level

On technical charts, NZD/USD has so far managed to hold above vital converging support on the lower edge of a downward channel from February and a 50% retracement of the October 2022 to February 2023 high. For further discussion, see “NZD Slide Approach Limits: NZD/USD, EUR/NZD, GBP/NZD Price Setup”, published on June 1.

NZD/USD daily chart

Chart created using TradingView

While holding above support is encouraging for the bulls, it doesn’t mean the worst is over – at the very least, NZD/USD would need to breach the 200-day moving average (now at 0.6150) for immediate bearish pressure to ease. A stronger signal would be a cross above the May high of 0.6385 to reverse the downtrend.

Monthly chart of the New Zealand dollar / US dollar

Chart created using TradingView

Interestingly, on the monthly chart, the 14-month RSI appears to be rising near the crucial 40 level, which has been associated with the pair’s rebound in the past. On the downside, any break below the lower edge of the downside channel would increase the downside risk.

Monthly chart of the Australian dollar / New Zealand dollar

Chart created using TradingView

AUD/NZD: Time for a Break?

After the stunning rebound, AUD/NZD may be taking a break for a while as it nears a hard ceiling at February’s high of 1.1085. But two significant developments on the higher time frame charts suggest that this month’s rally may have some legs. First, the rally in 2022 above the 2020 high of 1.1040 is a sign that the multi-month downward pressure is fading. Secondly, on the monthly charts, the pair managed to find support on the resistance which turned into support on the 89-month moving average. Any breach above 1.1085 is necessary for medium term expectations to turn positive.

EUR/NZD daily chart

Chart created using TradingView

EUR/NZD: Will the rally end for now?

EUR/NZD’s rebound this month has lacked steam, just as the pair is nearing a severe hurdle at the early May high of 1.7835. EUR/NZD is likely to stabilize in the range of 1.7150-1.7850 in the near term. This follows the pullback in April from the top of the rising channel since 2015. A break above the immediate support at 1.7570 Tuesday low will increase the odds of seeing a range.