NZD/USD Riding High on RBNZ and Optimistic Trade Talk Fumes

Fundamental analysis of Forex market

In the middle of the week, the RBNZ opted to leave its primary interest rate unchanged at 1.75%, where the central bank expects it to remain for a “considerable period.” Governor Orr and company noted that there were both upside and downside risks to inflation; therefore, the next change to interest rates could either be higher or lower.

Given the ongoing trade tensions between China and the US (New Zealand’s largest and 3rd-largest export markets respectively, accounting for 34.5% of the island country’s total exports), traders had been expecting a much more cautious outlook from the RBNZ. The central bank’s balanced outlook therefore prompted a 100-pip rally in NZD/USD, confirming a swing low in the 0.6725 area.

The rally has only gained steam in the last 48 hours, with trade talks carrying over into the coming week and President Trump stating he is considering extending the March 1 deadline for escalating tariffs on Chinese goods. If we continue to see positive headlines from the ongoing trade talks, NZD/USD will be one of the FX market’s biggest beneficiaries.

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Turning our attention to the chart, there are two key features to watch. Since the middle of October, NZD/USD has formed three bullish reversal patterns at the rising trend line, which currently sits around the 0.6700 area. Meanwhile, the pair has also formed two prominent bearish reversal patterns off resistance in the mid-0.6900s.

Continued positive rhetoric over the weekend could take rates up to test resistance near 0.6950, where bulls will be hoping for a definitive break to signal a potential continuation toward the Jun highs near 0.7050 next.

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