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Weekly Report: NZD Surged But Couldn’t Overcome Resilient Dollar and Yen

New Zealand Dollar ended as the strongest one last week, boosted by hawkish expectation on RBNZ. Though, the Kiwi’s strength didn’t provide much support to other commodity currencies, as Aussie and Loonie were indeed the worst performing ones. Yen and Dollar followed Kiwi as the next strongest, while European majors were mixed, with Sterling at a lower hand.

We’d like to argue that firstly, Kiwi’s overall strength was not confirmed yet, as both NZD/USD and NZD/JPY were just range bound. Resilience in Dollar and Yen were helped by indecisiveness in risk sentiments. In particular, Dollar’s momentum was actually not too convincing. Yet, developments in stocks and yield could to give Dollar another rising leg before it heads south again.

Kiwi surged on RBNZ, but broad based strength not secured yet

New Zealand Dollar’s strong rally was fueled firstly by RBNZ’s surprised halt of its asset purchase program, starting July 23. Then, much stronger than expected Q2 CPI reading, which blown away RBNZ’s own forecasts, triggered talks the central bank could raise interest rates as soon as in August, as many as three times this year.

Kiwi’s strength was most apparent against Aussie, as RBA maintained that conditions for rate hike won’t be met as least until 2024. AUD/NZD took out 1.0597 support to resume the fall from 1.0944, hitting as low as 1.0553. Current downside acceleration argues that it might be resuming the fall from 1.1042. Deeper decline is expected as long as 1.0657 resistance holds. AUD/NZD could drop through 1.0415 support to 100% projection of 1.1042 to 1.0415 from 1.0944 at 1.0317.

However, against Dollar and Yen, Kiwi was indeed not that strong. NZD/USD was still bounded in established range, held below falling 55 day EMA. It’s likely still in the decline from 0.7463, which could extend to 100% projection of 0.7463 to 0.6942 from 0.7315 at 0.6794 before completion.

Similarly, NZD/JPY was also held in range, kept below 55 day EMA. We’re expecting strong support from 38.2% retracement of 68.86 to 80.17 at 75.84 to contain downside as finish the corrective pattern from 80.17. However, s