NZD/USD is having trouble extending its rallies as it is testing the top of the rising channel on its 1-hour time frame. A short-term head and shoulders pattern has formed above the .8800 neckline, indicating that the short forex trade might materialize once price breaks below nearby support.
Stochastic is moving towards the oversold area, which means that there’s enough selling momentum present. In that case, price could fall back to the mid-channel area of interest near the .8750 minor psychological level.
However, if .8800 holds strongly as support, price might make an upside break as fundamentals still favor the New Zealand dollar. A potential rally might last by as much as 100 pips as well.
Forex Trade Forecast
Buying pressure remains strong for the New Zealand dollar as the RBNZ is still widely expected to implement another rate hike in their upcoming monetary policy statement. This could make the positive interest rate differential between the Kiwi and Greenback more attractive, as traders take a long NZD/USD forex trade in order to take advantage of the carry.
Bear in mind that the Fed has reiterated its plans to keep interest rates low for an extended period, not specifying when monetary policy tightening might start even after bond purchases end. In the latest FOMC meeting minutes though, policymakers confirmed that the taper will be on track to end asset purchases in October this year.
Risk aversion has been weighing on financial markets these days, as debt troubles in Portugal renewed demand for safe-haven currencies like the dollar. Combined with a slowdown in China, as seen in the latest CPI and trade balance data, this led to weakness among commodity currencies.
With that, there’s still a good chance that a short forex trade for NZD/USD might play out at least until better news pops up.
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