The NZDUSD has shown wild price swings since April, and the 4-hour chart indicates a lot of volatility. However, there’s a swing area between 0.5967 and 0.5977 that has been a key point, marking several swing highs and lows. Yesterday, the pair bounced back from the lower end of this swing zone. However, today’s stronger U.S. dollar pushed the price down, breaking through the 0.5967–0.5977 range and shifting the short-term outlook toward bearish.

Target Levels and Market Sentiment

If selling continues, target levels could include 0.5922, a recent low, and a swing area between 0.5882 and 0.5892. Another target is the 38.2% retracement of the April–July uptrend at 0.58765. If the price stays below the swing area and the 38.2% retracement, sellers may gain more control, leading to further declines. Pressure is building, but future actions will determine the trend. According to Michalowski’s technical analysis, the fundamental outlook is also clear. The strategy for traders is to prepare for further weakness in the Kiwi dollar against a strong U.S. dollar. Breaking that critical swing zone signals a shift in market sentiment, backed by solid reasons.

U.S. Dollar Strength and New Zealand Economic Outlook

The strength of the dollar isn’t random. The latest Consumer Price Index (CPI) report showed a 3.3% year-over-year increase, pushing expectations for a Federal Reserve rate cut further out, likely to November or later. This contrasts sharply with the market’s expectations from a few months ago. The Fed seems committed to keeping rates high to control inflation, making the dollar more appealing. Historically, when the Fed is hawkish and other economies struggle, pairs like the NZD/USD face pressure. We observed this during the 2022 tightening cycle, where the pair dropped over 15% from its peak. In New Zealand, conditions support this bearish outlook. The central bank is sounding tough on inflation, but the economy is struggling. Recent data from Stats NZ shows little growth in the first quarter, with only a 0.2% increase in GDP. Worse yet, the latest Global Dairy Trade auction, key for New Zealand’s largest export, saw prices fall by 0.5%. This ongoing weakness in dairy prices harms the nation’s trade balance and weighs on the NZD. Given this situation, we expect continued decline. For traders, this means looking for strategies that benefit from falling prices. Buying put options is a direct way to play this. Now that the pair is under that critical pivot, we suggest puts with a strike price near Michalowski’s level of 0.5900 or even 0.5875, aiming for the retracement zone. Choosing an expiration date four to six weeks out allows time for these fundamental pressures to impact prices. For those worried about high volatility, which can make options pricier, a bear put spread may be a better choice. This involves buying the 0.5950 put and selling the 0.5850 put to help finance the position. This caps potential profits but also lowers initial costs. The Commitment of Traders (COT) report supports this strategy, showing that large speculators are building their net short positions on the Kiwi, indicating institutional investors are preparing for the anticipated move. This isn’t a time to bet on a bounce; it’s time to follow the momentum and fundamentals. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now