NZD/USD Gains Appeal as Fed Rate Cut Looms

Market Overview

As market participants increasingly expect a more significant rate cut by the Federal Reserve during its upcoming September 17-18 meeting, the U.S. dollar has weakened against major currencies, including the New Zealand dollar (NZD). This meeting marks a key event in a busy week for financial markets, with the Bank of England and Bank of Japan also set to announce their policy decisions later in the week. Recent comments from Federal Reserve officials and economic data have heightened the likelihood of a rate cut, which has been priced into futures markets. The probability of a quarter-point rate cut is already fully factored in, with a 60% chance of a larger 50 basis point reduction—up from just 15% last week.

The primary debate among investors centers on whether the Fed will prioritize containing inflation or move decisively to address weakness in the labor market. This looming policy decision has dampened demand for the U.S. dollar, offering support to the NZD.

Technical Analysis

In the four-hour chart, NZD/USD has seen sellers retreat from their previous downward trend. This has provided buyers with the opportunity to challenge the recent key resistance level at 0.61932. Notably, the pair has printed a higher low at 0.61413, signaling that the bearish momentum has weakened. Buyers have also managed to push the price above both the 100-period and 34-period moving averages, which supports a bullish outlook.

If this upward momentum holds, a break above 0.61932 could pave the way for targets at 0.62073, 0.62253, and 0.62451.

Oscillator Confirmations

RSI: The Relative Strength Index is in the bullish zone, reinforcing the positive momentum.

MACD: The MACD histogram is moving higher, and the signal line is turning positive, indicating further upside potential.

Moving Averages: Both the 34-period and 100-period moving averages are trending higher, confirming the bullish outlook.

Alternative Scenario

However, if sellers regain control, NZD/USD could resume its sideways movement between 0.61932 and 0.61413. For the bearish trend to fully resume, sellers would need to decisively break below the key support at 0.61413.

Key Levels Overview

• Resistance Levels:
  • Resistance 4: 0.62772
  • Resistance 3: 0.62451
  • Resistance 2: 0.62253
  • Resistance 1: 0.62073
  • Current Price: 0.61932
• Support Levels:
  • Support 1: 0.61734
  • Support 2: 0.61413

Key Events to Watch

Several significant events in this week’s economic calendar could impact both the U.S. dollar (USD) and the New Zealand dollar (NZD). For the USD, August retail sales data will be crucial. Core retail sales showed moderate growth of 0.2% month-over-month, down from the previous month’s 0.4% figure. This slowdown in consumer spending may indicate weaker demand, potentially influencing GDP forecasts. Additionally, industrial production rose by 0.1% in August, rebounding from a prior contraction, signaling a modest recovery in manufacturing activity. However, annual industrial production remains down by -0.18%, reflecting ongoing challenges in the sector. These mixed economic indicators could influence the U.S. dollar in the short term, as markets search for clearer signals about the Fed’s future rate path.

For the NZD, consumer sentiment and Westpac’s current account data (year-on-year and quarter-on-quarter) are key factors. The current account deficit is projected to widen to -27.64 billion NZD in Q2, reflecting persistent trade imbalances that may exert downward pressure on the NZD. Moreover, Q3 consumer sentiment will provide insight into domestic confidence. Should sentiment decline from its previous reading of 82.2, concerns about global economic growth and its impact on New Zealand’s export-driven economy could weigh further on the NZD.

Conclusion

NZD/USD is currently benefiting from the weakening U.S. dollar, as markets anticipate a likely rate cut from the Federal Reserve. Technical indicators point to further upside potential, with key resistance levels at 0.62073, 0.62253, and 0.62451. However, if sellers regain control, a break below 0.61413 would signal a resumption of the bearish trend. Traders should closely watch upcoming U.S. retail sales and industrial production data, as well as New Zealand’s current account figures, as these events could shape the near-term direction of this currency pair.

• share