The US dollar is making a comeback against its European rivals and the Japanese yen so far, but the commodity dollars are showing the most strength heading into today’s US session. USDCAD fell to a 2-week low at 1.2350 on some modest strength in oil prices and AUDUSD sampled life above .7700 in today’s Asian session, but perhaps the most interesting move is in NZDUSD. The kiwi has rallied back 150 pips from Friday’s low to test key previous-support-turned-resistance at .7180 ahead of a tomorrow’s highly-anticipated RBNZ meeting.
We’ll have a full RBNZ preview report out during today’s Asian session, but it’s worth noting that market participants are almost evenly split on whether the central bank will opt to cut rates or remain steady: according to a survey by Bloomberg, six out of sixteen analysts expect a cut, while the Overnight Indexed Swap (OIS) market is pricing in about a 43% chance of a rate cut. With the market sharply divided heading into an important central bank decision, volatility is likely because regardless of the decision, about half the traders will be wrong and will have to adjust their positions.
From a technical perspective, the aforementioned .7180 will be critical: NZDUSD found strong support at this level in both February and March, and now that the .7180 floor has been broken, it is now serving as a ceiling on price, as we saw last week. Even if bulls can push the unit through .7180, the top of the channel around .7230 may put a cap on rates unless the RBNZ comes off less-dovish-than-expected. The secondary indicators are showing some nascent signs of bullishness, with the MACD turning higher from its depressed level and the RSI breaking above its downtrend after a bullish divergence.
As it stands, NZDUSD stands at an important crossroads heading into tomorrow’s RBNZ meeting: if the central bank opts to cut, the pair could reverse off resistance near .7200 and could eventually fall toward .7000, while a less-dovish-than-anticipated RBNZ could drive kiwi out of its 6-week bearish channel and bring .7400 back into play. One way or another, NZDUSD traders should prepare for an outburst of volatility at 5:00pm ET Wednesday (9:00pm GMT).