NZD Takes the Lead in FX
Once again, the week winds down to a close and its either a case of counting your winnings or regretting your losses. It’s been an interesting week in terms of news and data and there have been a few moves that have caught my eye. However, talking with various traders over last night and this morning it seems the move, certainly in the currency space at least, which has drawn the most attention (and for some, regret) is the rally in the New Zealand Dollar. NZDUSD has popped higher by almost 200 pips this week marking a nice gain for those along for the ride. So, as always, if you caught the trade – well done, and if you didn’t? better luck next time! So, let’s walk through what happened and why this was a great trade.
What Caused the Rally in NZDUSD?
First off, since the 2021 highs recorded in February, NZD has been on the decline. The sell-off was mainly fuelled by a change in housing regulation in the country taken by the government to address the over-heating in the housing market. The move was basically seen as removing the RBNZ’s need to hike rates in order to address the situation and curb lending.As a result, NZDUSD slid around 7% from highs.
Over recent weeks however, following the break of the bull trend line from 2020 lows, NZDUSD has been sitting in a holding pattern. This week, however, price suddenly shot higher. The driver behind the move was the latest monetary policy meeting from the RBNZ. While the meeting itself saw no fireworks, the unchanged decision and accompanying statement saw the bank sticking to its cautiously optimistic view.
With the government having addressed the issues in the housing market, which were creating a threat to the economy, the fundamental backdrop is seen to have improved in New Zealand. This view has allowed NZD to return to trading in line with global risk appetite which has taken another leg up this week in response to better US data.
The rally in the Kiwi this week has seen price breaking back above the bear flag formation which framed the correction from 2021 highs and back above the .7110 level. While above here, the focus is on a further push higher and a retest of the .7315 level next.
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