The New Zealand dollar posted an impressive rally on Wednesday after US inflation beat expectations, triggering a run into risky assets. The Kiwi jumped 1.8%, the biggest daily gain so far this year.
On Wednesday, NZD/USD settled at 0.6403, up 0.0116 or 1.82%.
Inflation data from the United States showed that consumer prices did not rise in July due to a sharp drop in the cost of gasoline, as the consumer price index rose more slower than expected 8.5%, after rising 9.1% in June.
The weaker data sent risk assets up sharply as investors hoped the Federal Reserve would become less aggressive in raising interest rates.
Meanwhile, the likelihood of a 75 basis point rate hike fell as the odds of a 50 basis point Fed rate hike increased. Meanwhile, traders expect another 50 basis point rate hike by the Reserve Bank of New Zealand (RBNZ) on August 17.
Looking ahead to Thursday, traders are gearing up for the release of the Real Estate Institute of New Zealand’s house price report.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. The main trend kicked in on Wednesday as the buyers hit the main high at 0.6353. It was reaffirmed in a trade to the main June 16 high at 0.6396. A trade through .6212 will change the main downtrend.
The intermediate range is 0.6576 to 0.6061. On Wednesday, the market closed on the bullish side of its retracement zone at 0.6379 to 0.6318, making it a support.
The main support is the long-term Fibonacci level at 0.6231.
On the upside, a pair of 50% levels at 0.6467 and 0.6547 are potential targets and resistance levels.
Traders’ reaction to the intermediate Fibonacci level at 0.6379 should determine the direction of NZD/USD early Thursday.
A sustained move above .6379 will indicate the presence of buyers. The removal of Wednesday’s high at 0.6434 will indicate that buying is strengthening with 0.6467 as the next target. Sellers could step in during the first test of this level. Overcoming it, however, could trigger an acceleration towards the next 50% level at 0.6548.
A sustained move below .6379 will signal the presence of sellers with the 50% level at .6318 the next target. Since the main trend is up, buyers are likely to participate in a test of this level. If it does not hold, the long-term Fibonacci level at 0.6231 will become the next major target. This is the last potential support before the main low at .6212.