By Mark Jensen
NZD/USD fell today from $0.8765 to $0.8688, making the biggest slump in 7 weeks. New Zealand’s dollar weakened as the nation’s CPI was below forecast, while and a gauge of dairy prices dropped to the lowest level since 2012. Lower inflation lifted off pressure from the Reserve Bank of New Zealand to tighten policy. In addition, the strength of the greenback after Yellen’s testimony has added to the negative pressure on the pair.
Technical levels: On H4 the pair’s oversold. Support is at $0.8670 (38.2% Fibo, 200 SMA) ahead of $0.8660, $0.8649 and $0.8618. Resistance is at $0.8732 and $0.8760.
Expectations: The slide we’ve seen today has significantly slowed positive momentum for the pair and spoiled the game for the bulls. On the daily chart we see that there’s now another top at the resistance line drawn through October 2013 high and this spring’s highs. As a result, I think that the pair’s growth will be limited by $0.8790 (June’s high). The RBNZ will meet next Wednesday, on July 23. Despite lower inflation, the odds are that the next week there will be a rate hike. This might give kiwi some lift taking it to resistance levels I mentioned above. Selling into these looks like a good idea. As New Zealand’s housing prices have started to fall, the RBNZ might soon finish with lifting up the benchmark rate. This will cool down the pair. A close below $0.8730 today will mean that the slide will continue towards $0.8620.
Chart. Daily NZD/USD