The New Zealand dollar hit its fourth consecutive low on Monday, edging closer to the 0.5700 mark, primarily affected by a robust US dollar and waning risk appetite. The main catalyst seemed to be heightened geopolitical tensions between Washington and Iran, with escalating rhetoric that threatened the fragile peace talks, which had only just eased market nerves.
Last week, markets had seemed to anticipate a reduction in tensions, partly since oil prices curtailed some of the conflict premium following the Versailles Framework agreement. This brought a momentary sense of relief for risk assets. However, fresh exchanges of barbs between the two nations reminded traders that a signed agreement doesn’t necessarily mean all disputes are settled. On the domestic front, the only noteworthy announcement was a slight increase in credit card spending, which didn’t leave much of an impact. The kiwi continued its descent.
A key factor bolstering the dollar is the Federal Reserve’s stance. It remains relatively hawkish, maintaining interest rates at 3.75% during last week’s Federal Open Market Committee meeting, while also adjusting the median projection towards 3.8% for this year. This strong outlook, contrasted with a dovish approach from other banks, offers a structural advantage to the dollar, negatively impacting rate-sensitive currencies like the kiwi.
Examined on the daily chart, the kiwi currently trades well under its 50-period and 200-period exponential moving averages, which hover around 0.5850. This keeps the prevailing trend decidedly bearish, establishing a precarious position for any potential rebound. The recent four-day drop pulled prices back towards the pivotal 0.5700 level, where April’s decline was briefly halted. Monday’s low edged just above this point before a late rally managed to reclaim some lost ground. With the Stochastic Relative Strength Index indicating oversold conditions at around 15, there’s potential for a corrective bounce, yet nothing in the current structure indicates that selling pressure has exhausted.
Resistance levels to watch: the first is around 0.5750. Recent daily movements have stalled here, with the moving average cluster at 0.5800 and then further at 0.5850 marking crucial points for any genuine trend reversal. On the support side, 0.5700 remains key, buttressed by April’s recovery from this zone. A decisive break below could pave the way for a slide towards 0.5650.
Overall bias suggests a downward trend as long as prices stay under 0.5750. Despite daily oversold conditions and a minor rebound late on Monday, the prevailing forces of a hawkish Fed and a fragile ceasefire still tilt predominantly in favor of further declines. Any rallies might just be opportunities for selling. The next crucial short-term indicator will be the US Purchasing Managers Index (PMI), set for release on Tuesday at 13:45 GMT.
