New Zealand Dollar Outlook:
- The New Zealand Dollar is turning lower as global risk appetite deteriorates in the wake of the November Fed meeting.
- NZD/JPY rates have been turned away from the underside of the rising trendline from the January and May swing lows, while NZD/USD rates’ rally stalled at a key Fibonacci retracement.
- According to the IG Client Sentiment Index, the New Zealand Dollar has a mixed bias in the near-term.
Recommended by Christopher Vecchio, CFA
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Risk Appetite Deteriorates
With global equity markets falling sharply over the past 24-hours in the wake of the Federal Reserve and Bank of England November policy meetings, the New Zealand Dollar has been weighed down as a high beta currency. Global recession concerns have mounted in recent weeks, with two of New Zealand’s top three trading partners, China and the United States, seeing a string of weaker economic data. The net-result of the dour fundamental environment has been a Kiwi that has seen technical weakness resume at critical resistance levels in both NZD/JPY and NZD/USD rates.
NZD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to November 2022) (CHART 1)
While NZD/JPY rates were able to rally from the ascending trendline of the March 2020 and January 2022 lows at the start of October, the rebound has been cut short once again at the underside of the uptrend from the January and May 2022 lows – the second such time in as many weeks. This has coincided with a drop below the 76.4% Fibonacci retracement of the 2014 high/2020 low range at 85.89. Ultimately, the pair remains within the broader confines of an ascending triangle carved out since the start of this year; sideways trading over the next few months remains possible.
NZD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to November 2022) (CHART 2)
The NZD/USD rates rally has been short-circuited at the 76.4% Fibonacci retracement of the 2020 low/2021 high range at 0.5940. Overall the downtrend from the April and August highs remains in place, suggesting that the technical structure remains bearish. For a brief time today, the pair fell below the entirety of its daily EMA envelope, suggesting that momentum is starting to rollover as well. Daily MACD’s rise through its signal line appears to be failing, while daily Slow Stochastics have exited overbought territory. Another wave of US Dollar strength may be around the corner, which in turn increases the possibility of a drop back to the yearly low (0.5512) and then the 2020 low (0.5469) over the coming weeks.
IG Client Sentiment Index: NZD/USD RATE Forecast (November 3, 2022) (Chart 3)
NZD/USD: Retail trader data shows 62.47% of traders are net-long with the ratio of traders long to short at 1.66 to 1. The number of traders net-long is 1.01% lower than yesterday and 6.98% lower from last week, while the number of traders net-short is 2.76% lower than yesterday and 22.22% higher 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 more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed NZD/USD trading bias.
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— Written by Christopher Vecchio, CFA, Senior Strategist