A dovish Reserve Bank of New Zealand (RBNZ) policy outcome this week, accompanied by a bloated NZD long positioning sees the kiwi breaking under a protracted 18- month trend support. As Benjamin Wong, Strategists at DBS Bank, notes, support is arriving at a prior confluence zone pegged in the 0.6793-0.6776 zone.  

Prior support confluence just ahead

“NZD has fallen post the RBNZ risk event, as it tracks the 12 bps decline on the barometer NZD 2-year yields. Speculative accounts have built persistently long NZD positions from early September. This would cap NZD’s performance given growth potential is starting to diverge against NZ, and that the long positioning is indeed bloated at this juncture.”

“For now, NZD is still under pressure given the break of the 18-month trend support as a key support peg at 0.6930 has caved in. This brings attention to the late August lows at 0.6805.”

“NZD/USD is expected to drift lower towards the 0.6805 lows and perhaps even the 61.8% Fibonacci retracement of the run-up from June’s 0.6377 lows to the 0.7465 spike high that calibrates at 0.6793. The prior confluence zone around Fibonacci markers 0.6793-0.6776 is likely the soft-landing zone that would match the increasingly oversold readings. Look for support to hold up.”