NZDUSD Falls Sharply as RBNZ Worries About Strong NZD; Interest Rates, QE Unchanged

For a second day in a row, NZDUSD has a volatile start to its trading day. Yesterday, concerns that the US-China trade deal is no longer on the table drove the currency pair lower. Today, NZDUSD fell sharply following the RBNZ interest rate decision

The currency pair fell from its intraday high of 0.6513 to 0.6448. Since then, NZDUSD has been trading steadily around 0.6481. What did the RBNZ say?

As expected the central bank kept interest rates unchanged at 0.25%. Its quantitative easing program was also steady at 60 billion NZD. The accompanying statement also hinted optimism with how the country has handled the coronavirus pandemic, stating that economic activity resumed much earlier than expected. On the other hand, the RBNZ warned that it would not hesitate to implement other monetary policy tools to support the economy.

What drove NZDUSD lower, however, was the central bank’s remarks on the strength of the local currency. According to the RBNZ, the recent appreciation of the New Zealand dollar has put a strain on the country’s exports. Consequently, these remarks were widely considered dovish because they hint that the central bank would want the NZD to be weaker.

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NZDUSD Outlook

On the 1-hour time frame, it can be seen that NZDUSD has recently made lower highs after making a series of higher highs. Consequently, a head and shoulders pattern has formed. When you enroll in our free forex trading course, you will learn that this is widely considered as a bearish reversal indicator. A strong close below the neckline support around 0.6475 could mean that there are still sellers in the market that could push price lower.

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A look at the daily time frame, it is apparent that the uptrend on NZDUSD is still intact. The rising trendline from connecting the lows of March 19 and May 18 is still valid and could provide the currency pair with support around 0.6285.

However, be wary of a strong close above today’s highs around 0.6513. This could invalidate the head and shoulders chart pattern and hint at more upside potential. Should this happen, we could soon see NZDUSD retest yesterday’s highs at 0.6523. If resistance at that price does not hold, the next resistance level could be at 0.6562 where NZDUSD topped on June 9 and 10.More content