After Falling to its 10-Year Lows, Technicals Suggest the Sell-Off on NZDUSD is Over

Summary:
• Yesterday, NZDUSD dropped to is lowest level seen since 2009 at 0.6023 but its monthly chart suggests that its sell-off could be over.

Yesterday, NZDUSD dropped to is lowest level seen since 2009 at 0.6023, but its sell-off could soon be over. As of this writing, the currency pair recouped most of its losses and is trading around 100 pips from yesterday’s bottom at 0.6322.

Like most majors, the Kiwi fell victim to risk aversion. News of an oil price war waged by Saudi Arabia triggered a flight to safety yesterday. It also did not help that the coronavirus outbreak has shown no signs of stopping.

NZDUSD was quick to recover its losses as the exchange rate fell low enough to attract bids. It also helped that the RBNZ is one of the few central banks that have not reduced interest rates amid the outbreak.. Yet.

In a speech earlier today, RBNZ Governor Orr said that zero rates for New Zealand is an unlikely scenario. However, he did reiterate that they are not ruling it out as an alternative. Among other options that the central bank is considering are: negative rates and purchasing government bonds and/or foreign currencies to reduce the NZD exchange rate.

The central bank monetary policy committee is not due to meet until March 25. If developments on the oil price war and the coronavirus outbreak improves, we may not hear any easing from the RBNZ. Alternatively, if the situation only worsens, RBNZ Governor Orr may announce more dovish measures like his counterparts.

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NZDUSD Outlook

On the 4-hour chart, we can see that the recovery on NZDUSD yesterday was limited by resistance around the 0.6400 psychological handle. This price offered a confluence of resistance with the 200 SMA and falling trend line (from connecting the highs of December 31 andJanuary 24) coinciding at this level. A bearish engulfing candlestick pattern has already formed which could be an indication that NZDUSD will soon fall to its March 2 lows at 0.6190.

Conversely, the monthly chart presents a more bullish technical setup for the currency pair. By connecting the lows of March 2001, September 2001, and March 2009, it can be seen that NZDUSD bounced off trend line resistance at 0.6190. If buyers are able to sustain their rally and finish March higher than February’s high at 0.6502, a bullish engulfing candlestick pattern will have formed. It could indicate that buyers are more dominant and NZDUSD will soon trade to its 2020 highs at 0.6740.