NZD Technical Analysis

NZDUSD is expected to be the most volatile currency. Ahead of the NZ inflation report, overnight implied vols have jumped by 4.9 vols to 12.25, which is the highest since the June RBNZ rate decision. This implies that NZDUSD ATM break-evens = 34pips(meaning that option traders need to see a move of at least 34pips in either direction in order to realise gains). Interestingly, risk reversals have flipped to positive at 0.1 (albeit relatively neutral), showing that demand is rising for topside protection in the short run.

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A break of counter-trend support guiding the New Zealand Dollar higher since mid-June suggests the dominant downtrend established from July 2017 has resumed. Sellers have challenged support in the 0.6482-96 area, with a daily close below that opening the door for a test of the October 2018 low at 0.6425.

Immediate resistance is in the 0.6559-91 congestion region. A break back above that eyes a dense layer of back-to-back support levels running up from 0.6653 through 0.6727. Beyond that, the dominant downtrend top intersects with the July swing top at 0.6791, making for a bias-defining barrier.

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With inflation and employment data much better than the RBNZ expected, risks are geared towards a possible 50bps hike.

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NZD/USD rose in the aftermath of a softer US dollar post-CPI. NZD weighed down by proximity to China as US-China tensions flare up.

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