The EUR/NZD currency pair is on the verge of breaking to a fresh record low as the divergence in monetary policies between the RBNZ and ECB grows. While the benchmark interest rate in New Zealand is at an attractive 3.5 per cent, in the Eurozone the ECB charges just 0.05%. What’s more, the latter is about to launch its QE stimulus programme this month, which could weigh further on the euro. The growing interest rate differential between New Zealand and the Eurozone means we are fundamentally bearish on the EUR/NZD.
Looking at the chart and the technical outlook does not look great either for the EUR/NZD. The cross is currently hovering around 1.4785/90, which was the low from mid-January. The rally from this low eventually ran out of steam around the 1.58 handle at the start of February where it came into strong resistance as it tested the 61.8% Fibonacci level and the 200-day moving average. It has since been breaking some key support levels such as 1.5200 and 1.5000. These levels are now likely to offer resistance should price bounce off the 1.4785/90 area once again. The bullish divergence on the RSI suggests the bearish momentum may have weakened at the start of this year.
However, the most likely outcome is that the EUR/NZD may break to fresh unchartered territories soon. If it does, we could see a continuation of the downward move towards 1.4500 or even 1.4150 over the coming days and weeks. These levels correspond with the 127.2 and 161.8 per cent Fibonacci extensions of the last upswing.