NZD/USD Head and Shoulder Takes Shape
The New Zealand dollar remains on the defensive as markets continue to price a dovish RBNZ and a growth backdrop that offers little near-term support for the kiwi.
Domestic economic news from New Zealand remains light today, leaving the kiwi sensitive to global drivers and ahead of key external data releases. Traders are watching risk sentiment and incoming U.S. employment figures for cues on the U.S. Dollar, which in turn is influencing NZD/USD moves as markets balance Reserve Bank of New Zealand (RBNZ) policy expectations with shifts in global financial conditions.
The RBNZ’s recent easing cycle, which has driven the official cash rate down to historically low levels and left markets expecting little near-term tightening, continues to weigh on the kiwi. Investors are reacting to lingering signs of spare capacity and weak domestic demand, which have kept the central bank comfortable with accommodative policy even as inflation remains within the target band.
NZD/USD Daily Price History
In the above chart, NZD/USD is sitting near its year-to-date low, having struggled against the backdrop of volatility in commodity prices. The price action since the start of December may be proving ominous, insofar as both the downtrend from the July and September highs remained intact while a head and shoulders pattern concurrently took shape. With a head at 0.5853 and a neckline at 0.5736, a break of the neckline would suggest a downside measured target of 0.5619 (head less neckline equals 117-pips).
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