The New Zealand dollar (NZD) has fallen sharply against the US dollar (USD) in recent days, due to the stronger-than-expected US inflation report and the Fed's hawkish stance.
The New Zealand dollar (NZD) has experienced a sharp decline against the US dollar (USD) in recent days, with NZD/USD trading at 0.5943, representing a 1.27% decrease in a single day. This decline is attributed to the latest US inflation report, which showed that the US Consumer Price Index (CPI) remained unchanged at 3.7% year-on-year, slightly exceeding the market's expectation of 3.6% year-on-year. The Core CPI, which is considered a better indicator of long-term inflation trends, declined from 4.3% to 4.1% year-on-year, matching market estimates. This is the lowest level since September 2021.
The stronger-than-expected headline CPI has raised expectations that the Federal Reserve might keep interest rates elevated for a longer duration and potentially raise rates before the end of the year. The Fed is currently grappling with the challenge of bringing inflation back down to its target of 2%. The rise in US Treasury yields, leading to higher borrowing costs, has sparked a more dovish tone among some Fed members. They believe that the increase in yields could slow economic growth and naturally reduce inflation without necessitating rate hikes.
However, the recent FOMC minutes revealed dissension among Fed policymakers. The majority of members expressed the need for a rate hike at a future meeting, while a minority believed that further hikes were unnecessary. However, all members agreed that monetary policy should remain restrictive until inflation was moving down sustainably toward the 2% target.
In response to the US inflation release and the Fed's hawkish stance, the US dollar has gained strength against major currencies. The Fed rate odds for a hike before the end of the year have increased to 38%, up from 26% before the inflation report, according to the CME FedWatch Tool.
The NZD/USD exchange rate is particularly sensitive to the US dollar's strength, as New Zealand is a commodity-exporting nation. A stronger US dollar makes New Zealand exports less competitive in global markets, weighing on the NZD.
In addition to the US dollar's strength, the NZD is also facing headwinds from domestic economic factors. New Zealand is set to release its Manufacturing Index on Friday. The index is expected to rise to 46.9 in September, compared to 46.1 in August. However, a reading below 50.0 suggests a contraction in the manufacturing sector.
Overall, the NZD/USD exchange rate is likely to remain under pressure in the near term, given the US dollar's strength and the prospect of higher US interest rates. New Zealand's manufacturing sector performance will also be closely watched in the coming days.
The NZD/USD currency pair is forming a false breakout and reversal pattern. This means that the price has broken out of a resistance level, but it is likely to reverse and fall back below the level. There is an opportunity for a decline to 0.59000.
This pattern is supported by technical analysis on both high and low timeframes. On the high timeframe, the price has falsely broken out of a global range resistance level. This suggests that the market is not ready for a further break to the upside. On the low timeframe, the price has formed a false breakdown in the "head and shoulders" format. This is a bearish reversal pattern that suggests that the price is likely to fall further.
If you are considering entering a sell trade, you may want to wait for a pullback to 0.5985 and 0.59600. These levels are significant because they represent the targets of the false breakout and reversal patterns.
TRADE RECOMMENDATION
SELL NZDUSD
ENTRY PRICE : 0.6000
STOP LOSS : 0.6070
TAKE PROFIT : 0.5900
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