The New Zealand Dollar (NZD) might pull back against the US Dollar (USD), likely staying between 0.5925 and 0.5970. Recent declines in the NZD appear to be stabilizing, and the currency is expected to trade between 0.5905 and 0.6000 in the near future. Last Thursday, the NZD hit a low of 0.5907 before bouncing back. On Friday, it climbed to 0.5991 and closed at 0.5961, an increase of 0.49%. Although another pullback is possible, it will likely stay within the 0.5925/0.5970 range.

NZD Consolidation Phase

In early July, forecasts predicted a weaker NZD, but recent trends suggest this downward movement has ended. The NZD reached a high of 0.5991, breaking through the resistance level of 0.5980. This indicates that previous weaknesses are fading. Current trends suggest a consolidation phase between 0.5905 and 0.6000. The provided information includes forward-looking statements and involves potential risks. This data is for informational purposes only and should not be interpreted as trading advice. It’s essential to do thorough research before making investment decisions, as investing involves risks. Given the expected consolidation, we believe it’s a good time to sell volatility rather than predict a direction. Derivative strategies like short strangles or iron condors, which benefit from time decay and minimal price fluctuations, seem suitable. Our analysis indicates that the pair will remain stable, creating a favorable setup for these strategies.

RBNZ Policy Impact

The Reserve Bank of New Zealand’s (RBNZ) policy limits the upside for the local currency. Governor Orr has kept the official cash rate at a restrictive 5.5% to control inflation, which latest data shows at an annual rate of 4.0%. We believe this cautious stance from the central bank effectively caps significant gains for the NZD at this time. On the USD side, there’s no clear directional driver, reinforcing the sideways outlook. The U.S. Federal Reserve is also taking a cautious approach, looking for more certainty that inflation is heading toward its 2% target before making any rate changes. This creates a balanced environment against currencies with a similar wait-and-see approach. Historically, we’ve seen similar consolidation periods in this currency pair following sharp moves. For instance, late in 2023, the pair traded sideways for weeks after a significant drop before its next major move. Current implied volatility for NZD/USD options has decreased, indicating that the market doesn’t expect a major breakout soon. Create your live VT Markets account and start trading now.

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