Fundamental Overview
The USD came under pressure since Friday following the softer than expected US CPI report and then the US-China preliminary deal over the weekend. Overall, the market pricing didn’t change much as it was already very dovish going into the CPI and the trade talks, but given the positive risk sentiment, the greenback continues to stay on the backfoot.
The risk-on sentiment is expected to weigh on the dollar in the short-term, although Treasury yields could also erase the drop triggered by Trump’s escalation a couple of weeks ago. This could create some tension between bullish and bearish drivers, but for now there’s no strong reason for the dollar to rally amid the lack of key US data.
The Fed tomorrow is widely expected to cut by 25 bps and announce an end to QT. They will likely keep the status quo given the lack of US data in terms of forward guidance. For this reason, the decision is likely to be a non-event considering that we won’t even get the SEP.
On the NZD side, the RBNZ cut by 50 bps at the last meeting bringing the OCR to 2.5%, which is the lower bound of their estimated neutral range (2.5%-3.5%). They kept an easing bias though as they are trying to “feel their way” as RBNZ’s Conway recently said.
Last week, we got the New Zealand Q3 inflation report, but the data came out basically in line with expectations. That didn’t change anything in terms of market pricing which continues to see a 91% probability of a cut in November.
NZDUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the NZDUSD broke above the resistance zone around the 0.5780 level. The buyers piled in on the break with a defined risk below the resistance now turned support, to position for a rally into the 0.5850 resistance next. The sellers, on the other hand, will want to see the price falling back below the 0.5780 support to step back in and target new lows.
NZDUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have an upward trendline defining the bullish momentum. If we get a pullback into the trendline, we can expect the buyers to lean on it with a defined risk below it to keep pushing into the 0.5850 resistance. The sellers, on the other hand, will look for a break lower to increase the bearish bets into new lows.
NZDUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much we can add here as the buyers will likely step in around the support and the trendline, while the sellers will look for downside breakouts to push into new lows. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the FOMC policy decision. On Thursday, we have the Trump-Xi meeting.
