The NZD/USD pair is starting to face headwinds after the Reserve Bank of New Zealand announced that it dismantle some of the temporary liquidity facilities it put in place to stave off the negative impact of the coronavirus pandemic.
The process will involve the closing of the Term Auction Facility (TAF) window, which hitherto allowed NZ banks to borrow funds at quarterly, bi-annual and annual tenors, using collateral such as NZ Government securities and Residential Mortgage-Backed Securities (RMBS). The Corporate Open Market Operation (COMO) window, which allowed banks to borrow money for 3 months using asset-backed securities will also be closed.
These decisions follow improvements in financing conditions in the one year that the facilities have been operational. Usage of these facilities has dwindled in recent months, especially as the asset purchase programs of the RBNZ had resulted in more low-cost funding systems for banks.
Technical Levels to Watch
The price action on the NZD/USD chart resembles a downward motive phase of the 1-2-3-4-5 Elliot wave pattern. Price seems to be at the resolution point of wave 4, with the NZD/USD finding resistance at the 0.71792 price level. This is the 38.2% Fibonacci retracement level from the swing trace of the 3rd wave (high of 2 March to low of 8 March).
As long as 0.71792/0.72000 holds, we could see a resumption of the correction from present levels needs to break down the 0.71004 psychological price support for 0.70541 to become the next downside target. Below this level, 0.70009 (21 December 2020 low) serves as additional support.
On the flip side, better risk-on sentiment in the market would need to drive the pair above 0.73084 for the NZD/USD to target previous 2021 highs at 0.74414. This move would have to take out 0.72000, 0.72264, and 0.72600 along the way to do this, with new 2021 highs being formed if the price can breach 0.74414.
NZD/USD Daily Chart