By Stuart Talman, XE currency strategist
As expected, it's been a quiet start to the week given the Juneteenth US holiday. Risk sentiment has soured a little through Monday's sessions, market participants likely pondering whether the 2Q risk rally can extend higher or, as technical momentum indicators suggest, the market is now overbought.
Amidst an absence of market moving newsflow and dataflow, net moves for currencies have been relatively small. Opening the new week near 0.6230, the New Zealand dollar was offered straight out of the gates, falling into the lower 0.62's throughout local trade, before improving back to 0.6230 heading into the London morning.
European equity indices are down close to 1% on no obvious catalysts, suggesting that profit taking may be favoured in a week that is light on tier 1, market moving events.
US cash equity and bond markets are closed in observance of the relatively new Juneteenth public holiday which was signed into federal legislation on June 17, 2021. The holiday commemorates the emancipation of African-American slaves following an order given by Major General Gordon Granger on June 19 1865 to free the slaves in the state of Texas.
The Kiwi followed European bourses lower in overnight trade, initiating a second intraday sell-off from 0.6230 resistance, this time breaking below 62 US cents to log Monday's low a pip or so from 0.6190.
Yesterday, we flagged a couple of important technical hurdles for the Kiwi to clear through the first half of this week to confirm if the 4%+ rally off the year-to-date low below 60 US cents could extend higher.
Last week's highs lifted NZDUSD through the 61.8% Fibonacci retracement of the May downswing, located at 0.6232.
In the run-up to last Thursday morning's FOMC meeting, the Kiwi ascended into the 0.6230's before retreating to 0.6160. Another surge in Thursday's overnight session lifted the Kiwi into the 0.6240's, but once again, the pair flashed upside exhaustion signals, slipping back below 62 US cents.
With price action also slipping below the 100-day moving average following Monday's soft start to the week, Friday's high looks to be a short-term swing high.
Regarding near-term support to monitor - 0.6180 presents as a key level having supported price action in March, April and May. The 23.6% Fibonacci retracement of the rebound off the 31 May year-to-date low is located at 0.6186.
If NZD sellers push NZDUSD below here, we'll likely see the pair pullback to the 200-day moving average, currently located near 0.6150. A critical support zone presents between here and 0.6130.
So, your key zones to monitor over the next 24 hours: 0.6230/50 on the upside and 0.6150/80 on the downside.
Looking to the day ahead, the two major regional events are the People's Bank of China interest rate decision and RBA meeting minutes.
Following cutting the one-year Medium Tern Lending Facility rate (MLF) by 10bps last week, the PBoC is universally expected to also cut its main lending benchmark, the Loan Prime rate (LPR) by 10bps.
Some of the New Zealand and Australian dollars' upside over the past fortnight can be attributed to expectations for China monetary easing.
RBA meeting minutes from the June meeting will be scrutinised to determine how unified RBA board members were in delivering the non-consensus 25bps hike. Should the minutes represent a hawkish board that appears likely to hike again in July, look for NZDAUD to break below 0.9050 support to challenge the year-to-date low a couple of pips above 0.9020.
The offshore calendar remains light for Tuesday ahead of an important UK CPI report on Wednesday evening.
It will be interesting to see if US equity markets resume their rally or, in the wake of last week's seemingly hawkish Fed forward guidance, a reality check initiates a profit taking wave.
We favour mean reverting price action this week, the Kiwi to settle back below 62 US cents as some froth is taken out of the market.
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Stuart Talman is Director of Sales at XE. You can contact him here.
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