New Zealand Dollar Outlook:
- Technical weakness is accelerating among the major NZD crosses.
- NZD/JPY rates reversed their bullish bursts, while NZD/USD rates established a fresh annual low ahead of the September Fed meeting.
- However, according to the IG Customer Sentiment Indexthe New Zealand Dollar has a mixed bias in the near term.
Recommended by Christopher Vecchio, CFA
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A lower turn in commodity prices has caused a deterioration in New Zealand’s terms of trade in recent weeks, reviving fundamental headwinds for the New Zealand Dollar. Along with a general risk-on tone permeating global financial markets, the premium commodity currency struggled as the calendar turned to mid-September. Against the background of weak seasonal trends in recent yearsthe New Zealand Dollar is on shaky ground ahead of the September Fed meeting.
TECHNICAL ANALYSIS OF NZD/JPY ACCOUNTS: DAILY DIALOG (September 2021 to September 2022) (CHART 1)
NZD/JPY rates attempted a breakout of two bullish continuation patterns – the range that formed since early June and the symmetrical triangle that began in early April – seem to have failed. Momentum is bearish. NZD/JPY rates are below their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Daily MACD is trending lower on the verge of crossing below its signal line, while daily Slow Stochastic is approaching a move into oversold territory. The return to the consolidations generates an expectation that the pair will return to support: for the triangle, this is close to 84.00; for the range, support is near 83.00.
NZD/USD TECHNICAL ANALYSIS: DAILY REPORT (September 2021 to September 2022) (table 2)
At the end of August, it was noted that “a move above the confluence of Fibonacci retracements (61.8% of 2020 low / 2021 high at 0.6231 and 23.6% of 2014 high / 2020 low at 0.6264) combined with a return above the daily 21-EMA (one-month moving average) would give credit to a short-term fund developed.” This never happened. Instead, NZD/USD rates continued lower, and today established a fresh monthly and annual low. After breaking the 76.4% retracement of the 2020 low/2021 high, the next level of support comes at the April 2020 low at 0.5843.
IG Client Sentiment Index: NZD/USD RATE Forecast (September 20, 2022) (Chart 3)
NZD/USD: Retail trader data shows 72.03% of traders are net-long with the ratio of traders long to short at 2.58 to 1. The number of traders net-long is 5.63% higher than yesterday and 30.03% higher than last week, while the number of traders net-short is 5.56% lower than yesterday and 45.71% higher than last week.
We usually take a contrarian view to crowd sentiment, and the fact that traders are net-long suggests that NZD/USD prices will continue to fall.
Positioning is more net long than yesterday but less net long than last week. The combination of current sentiment and recent changes gives us an additional mixed NZD/USD trading bias.
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— Written by Christopher Vecchio, CFA, Chief Strategist