- NZD/USD gains strong traction for the fourth straight day and climbs to over a one-month high.
- The technical setup favours bullish traders bulls and supports prospects for additional gains.
- Any meaningful dip towards the descending trend-line breakout is likely to get bought into.
The NZD/USD pair prolongs its recent upward trajectory witnessed over the past two weeks or so and continues scaling higher for the fifth successive day on Monday. This also marks the seventh day of a positive move in the previous eight and lifts spot prices to over a one-month high, around the 0.6350 region heading into the North American session.
The US Dollar (USD) languishes near the monthly low touched last week amid firming expectations that the Federal Reserve (Fed) is nearing the end of its year-long rate-hiking cycles. This, along with concerns about the US debt ceiling and the risk-on impulse, further undermines the safe-haven Greenback and provides an additional lift to the risk-sensitive Kiwi.
From a technical perspective, the momentum allows the NZD/USD pair to break through a short-term descending trend-line hurdle extending from the YTD peak touched in February. Given that oscillators on the daily chart holding comfortably in the bullish territory and are still far from being in the overbought zone, the set-up supports prospects for additional gains.
Hence, a subsequent move towards retesting the April monthly swing low, around the 0.6380 region, en route to the 0.6400 mark, looks like a distinct possibility. Some follow-through buying has the potential to lift the NZD/USD pair towards the next relevant hurdle near the 0.6435-0.6440 region, above which bulls might aim to reclaim the 0.6500 psychological mark.
On the flip side, the descending trend-line resistance breakpoint, currently pegged just below the 0.6300 round-figure mark, now seems to protect the immediate downside. Any further decline is more likely to attract fresh buyers and remains limited near the 200-day Simple Moving Average (SMA), around the 0.6255 zone, which should act as a strong base for the NZD/USD pair.
NZD/USD daily chart
Key levels to watch
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The New Zealand Dollar (NZD) versus the United States Dollar (USD) price has been on a tear in recent weeks, as investors grow ever more bullish on the currency pair. In the past five trading days alone, the NZD/USD has achieved new one-month highs, continuing a long-term trend that has seen the currency pair increase in value by more than 8 percent since the start of 2021.
The bullish sentiment behind the currency pair began in mid-March, when the RBNZ (Reserve Bank of New Zealand) declared a new five-year wholesale funding rate of just 0.25 percent, its lowest level ever, in order to support economic growth. This announcement was well-received by Forex traders, who saw the prospect of low interest rates as a sign of monetary easing and a potential boon for exporters and businesses.
The NZD/USD pair’s subsequent rally has been even more impressive considering the broader market dynamics. The US Dollar, which is often seen as a safe-haven investment, has been trading near its strongest levels in more than two years, due in part to the broad-based strength of the US economy. In addition, the ongoing coronavirus pandemic has weighed on global growth, making the US one of the few bright spots in the world.
Given these factors, it’s no surprise that the NZD/USD is currently trading at a fresh one-month high and is fast approaching the April swing high. Market participants are likely to take their cue from the pair’s next major technical level, which is likely to determine the near-term direction.
In the near-term, the trend in the NZD/USD is likely to continue, as investors remain bullish on the pair. The pair’s upside is also being bolstered by continued strength in demand for exporters and businesses.
Longer-term, the direction of the currency pair remains dependent on geopolitical developments and monetary policy. If the RBNZ continues to support economic growth through accommodative policies, the NZD/USD may move even higher. However, the strength of the US Dollar could put a ceiling on the pair’s gains.
Ultimately, price movements in the NZD/USD will depend on investor sentiment. If the pair continues to find support from the underlying fundamentals, then it looks set to reach new highs in the near future.