NZD/USD exchange rate analysis: golden cross pattern forms

on Dec 28, 2023
  • The NZD/USD pair continued rising as the Fed and RBNZ divergence continued.
  • The rate has formed a golden cross pattern on the daily chart.
  • The rally happened as the US dollar index continued falling.

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The NZD/USD exchange rate continued its bullish momentum as the US dollar index (DXY) sell-off accelerated. The pair rose to a high of 0.6368 on Thursday, its highest point since July 14th. It has risen by more than 9.77% from its lowest point in October.

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US dollar index sell-off

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The NZD to USD exchange rate has been in a strong uptrend in the past three months as investors embrace a risk-on sentiment. This rally has coincided with the ongoing US dollar performance, with the DXY falling to $100.7 from the year-to-date high of over $107.35.

The greenback has weakened against most currencies, including the euro, sterling, and the Swiss franc. This sell-off continued after the latest data revealed that the US inflation continued slipping in November.

According to the Bureau of Economic Analysis (BEA), the headline and core PCE rose at a slower pace than expected in November. These were important numbers because the PCE is the Fed’s favourite inflation gauge. 

The numbers reinforced the view that the Federal Reserve will start cutting interest rates as soon as in March next year. At the same time, the betting market anticipates as many as six rate cuts in 2024.

Meanwhile, the Reserve Bank of New Zealand (RBNZ) has maintained a modestly hawkish tone even as the economic slowdown continues. The most recent data revealed that the economy contracted by 0.3% in Q3, worse than the RBNZ estimate of a 0.3% expansion.

Therefore, analysts believe that the RBNZ will start to cut rates earlier than expected. Those at ASB Bank expect rate cuts to start in June, six months earlier than it had predicted. Some analysts see rate cuts coming earlier since the economy is in a stagflation,

NZD/USD technical analysis

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NZD/USD chart by TradingView

Turning to the daily chart, we see that the NZD to USD pair has been in a strong uptrend in the past three months. It is now approaching the crucial resistance point at 0.6410, its highest level on July 14th. 

Most notably, the pair has formed a golden cross pattern, which happens when the 200-day and 50-day moving averages make a crossover. In price action analysis, this is one of the most bullish signs in the market.

Therefore, the outlook for the NZD/USD pair is bullish as the Fed and RBNZ divergence continues. If this happens, the next point to watch will be at 0.6400.

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