New Zealand Dollar Technical Analysis: NZD/JPY, NZD/USD Rates Outlook

New Zealand Dollar Outlook:

• The New Zealand Dollar held critical support, sparked by hotter than expected inflation data.
• NZD/JPY rates have rebounded from the uptrend from the March 2020 and January 2022 lows, while NZD/USD rates are off their yearly lows.
• Nevertheless, according to the IG Client Sentiment Index, the New Zealand Dollar has a bullish bias in the near-term.

Hot Inflation Helps Kiwi

With global equity markets rallying in recent days, the New Zealand Dollar has benefited as a high beta currency. But the more important development this week was the hot 3Q’22 New Zealand inflation report, which showed price pressures staying stubbornly elevated despite the Reserve Bank of New Zealand’s aggressive rate hike efforts this year. In turn, rate hike odds have risen for the next few months, supporting the New Zealand Dollar: ahead of the inflation report, 50-bps rate hikes were discounted at each of the next three RBNZ meetings; now, a 75-bps rate hike is possible in November.

NZD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to October 2022) (CHART 1)

Last week it was noted that “the pair is approaching an area of significant technical support: the September low at 80.56; the rising trendline from the March 2020 and January 2020 lows; the 23.6% Fibonacci retracement of the 2020 low/2020 high range at 81.17; and the 61.8% Fibonacci retracement of the 2014 high/2020 low range at 80.75…a drop through the support area around 80.56/81.17 would suggest a more significant sell off is yet to come.” But this never transpired; instead, support held, with NZD/JPY rates gaining momentum as the early-October high was breached. Resistance lies ahead near 84.69, the 76.4% Fibonacci retracement of the 2014 high/2020 low range, which has short-circuited rallies multiple times throughout this year.

NZD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to October 2022) (CHART 2)

NZD/USD rates have rebounded off of yearly lows last week, setting up a countertrend move. But the downtrend from the August and September swing highs remains in place, suggesting it is too early to claim that the thrust lower has been completed. The pair has found resistance at its daily 21-EMA (one-month moving average) having traded above its daily 5-, 8-, and 13-EMAs. Daily MACD is trending higher albeit below its signal line, while daily Slow Stochastics are advancing towards their median line. Additional gains towards 0.5750/75 are possible before the August and September downtrend is reached.

IG Client Sentiment Index: NZD/USD RATE Forecast (October 18, 2022) (Chart 3)

NZD/USD: Retail trader data shows 69.62% of traders are net-long with the ratio of traders long to short at 2.29 to 1. The number of traders net-long is 0.29% higher than yesterday and 3.08% lower from last week, while the number of traders net-short is 9.42% higher than yesterday and 3.82% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZD/USD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed NZD/USD trading bias.

— Written by Christopher Vecchio, CFA, Senior Strategist