NZD/USD: Technical Picture is Bearish - Westpac
Imre Speizer, Research Analyst at Westpac, suggests that the NZD/USD has
been stronger than expected so far this year, thanks mainly to the US
dollar’s decline.
Key Quotes
“We still
expect it to weaken but now target an upgraded 0.65 over the next three
months. The main fundamental determinants of NZD/USD over a multimonth
horizon are NZ-US interest rates and NZ commodity prices. Add to these
the more behavioural “risk sentiment” determinant, and overlay that with
broad US dollar behaviour, and we have a framework to forecast the
NZD/USD.
Risk sentiment exerts an occasional, but strong,
influence on NZD/USD. It appears to have significantly contributed to
the 11% rally in NZD/USD since January. Sentiment can be reflected via
indicators such as the S&P500, VIX, and MOVE indices. We note they
show sentiment is elevated, albeit not at extremes.
NZD/USD will
obviously be affected by movement in the broad US dollar, which often
moves independently of US interest rates. The fall in the US dollar
index was closely matched by a rise in NZD/USD. The DXY index’s sixmonth
long decline arguably became stretched, such that May’s rebound has
scope to run further during the weeks ahead. That argues for NZD/USD
downside.
The technical picture is bearish, at least over a
multi-week horizon. First, there is the double top formed at 0.7054 in
late April and early May which signalled a reversal. Then there is the
downside break on 6 May of a four-month old ascending channel. The
channel break targets the 0.6550 area, while a 50% retracement targets
0.6700. Momentum is negative and the recent decline has scope to run
much further before an oversold condition materialises.”
