The Kiwi, New Zealand dollar (NZD), has exploded against US dollar, at almost 0.5930. This record-breaking increase can largely be attributed to a bullish market sentiment supporting riskier assets. Interestingly enough, this expansion comes just as the NZD/USD looks to cross back above its 200-day Exponential Moving Average (EMA), sitting around 0.5912 at the moment. On Monday on the back of the European trading session alone, the pair shot up by 0.66%. This extraordinary jump marks an important change in market sentiment leading traders to eagerly watch the currency pair’s movements.
Market analysts are pointing this positive momentum down to the recently soft US non-farm payroll (NFP) data for the month of August. The report has already led to considerable speculation for a dovish shift from the Federal Reserve. To date, this speculation has increased the overall attractiveness of the NZD relative to the USD. A final indicator reflected in the current trading environment is that traders are extending more risk. This increasing appetite for riskier assets is pushing up the price of the NZD/USD.
Technical Indicators Show Positive Momentum
Even aside from the fundamental drivers pushing the NZD/USD higher, technical indicators paint a very bullish picture for the currency pair. Similarly, the 14-day Relative Strength Index (RSI) is quickly approaching the key level of 60.00. This mark is often viewed as a golden key threshold that generates bullish momentum. If the RSI were to clear above this threshold, it may foreshadow an even more powerful uptrend for the NZD/USD.
The recent break above the 200-day EMA adds to bullish sentiment surrounding this currency pair. Some traders view the index as a more important support or resistance level technical indicator. When the price crosses above it, it is typically an early bullish indicator. This new bullish momentum can attract more traders to open long positions, thereby pushing the prices even higher.
Yet all this optimism market participants are still skittish about downside risks. Should the NZD/USD break below the August 2 low at 0.5800, it would be opens up to further downside. The next major support level is defined at 0.5700. If any of these movements happen, they would be a wet blanket on such optimism. This serves as an important reminder to watch strong technical indicators and general market sentiment.
The Impact of US Economic Data
The soft US NFP data released earlier this month has played a pivotal role in shaping market expectations regarding monetary policy from the Federal Reserve. A much weaker employment report stirs up the heebie jeebies over accelerating economic growth. This often results in misplaced market expectations that the central bank will do more dovish things with its monetary policy.
Speculation has created a climate among investors that only encourages risk-taking. Consequently, demand for currencies such as the New Zealand dollar has increased. Global traders are taking a particular interest in how US economic data will affect the path of interest rates. Consequently, they have strong incentives to change their marks and support mouthier assets.
The US economy plays an enormous role in determining currency movements. Future economic indicators and central bank communications are key for determining whether this relationship will hold. Uncertainty abounds. Market participants are hanging on every hawkish or dovish signal from the Fed. Any clues would make a major impact on their speculation tactics for NZD/USD.
Future Outlook for NZD/USD
Looking ahead, analysts anticipate that the NZD/USD will remain sensitive to both technical and fundamental developments in the coming weeks. Should the bullish continuation prevail, the RSI would likely push above 60.00. This might pave the way for more advances and aim at some new resistance walls.
Bulls must not let their guard down and overlook the possibility of a reversal. A deeper drop under important support would likely have traders reevaluating their positions, especially should risk appetite start to change. This leaves round-level support at 0.5700 important. If it cannot withstand this next selling pressure, stay tuned for even greater selling pressure to come.