NZDUSD Outlook: Week of 2/17

by on February 15, 2014 6:56 pm BST

NZDUSD has been trending strong on a combination of the weak dollar, fundamentals and association to the commodity currencies. Like the AUDUSD, the kiwi has seen over 300 pips of upside since February 4. However, price action has entered a supply zone, and the next few sessions are likely to redefine the short-term outlook. The longer it lingers at current levels, the pair could see a nice pullback.

The boom in economic data has been supportive of the kiwi as traders begin to bet on an interest rate hike. According to Westpac Banking Corp., New Zealand will see a 4.2 percent increase in growth expansion in 2014. The firm believes the NZDUSD will remain above 80 cents per dollar, a level not seen since last September.

Not everyone is that optimistic. Stephen Jen, hedge fund partner at SLJ Macro Partners LLP, believes the kiwi will see a significant job and that it is upwards of 20 percent overvalued. Jen notes that New Zealand is “a growth model based on debt and credit, low savings rates, and current-account deficits,” comparing the country to European peripherals.

The daily chart shows that the pair is trending into a supply zone between .8372 and .8406. Cyclical factors could keep the pair elevated, but a clear break above these levels could signal a pullback. The 20 EMA has created a bullish crossover of the 50 and 72 EMAs, which supports the pair’s technical move. The momentum in the kiwi’s move against the dollar looks to be picking up steam, too. The ADX has began to increase, and the -DMI has steadily declined. However, the +DMI looks shaky.

NZDUSD is likely to pullback, potentially to .8300/15, before trending back upwards. If NZDUSD can breakout above the supply zone, .8465 is a probable target.

1D Chart of NZDUSD

1D Chart of NZDUSD