The New Zealand dollar drifted lower initially on Thursday, but has since seen a bit of buying pressure.
NZD/USD
The New Zealand dollar initially started selling off against the US dollar during the Thursday session, but has since bounced. That being said, it looks like we are a little overstretched to the downside, so it makes a lot of sense that maybe a short-term bounce occurs.
That short-term bounce for me, at least, is going to be a nice selling opportunity; the question, of course, is where exactly will it happen? The 0.57 level would be an area I'd be interested in if we saw some type of exhaustion in that neighborhood, and then again at the 0.5750 level. The market has been very bearish for a while, and that makes sense considering that the New Zealand dollar is highly levered to Asia.
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Central Bank Policies and Fundamental Factors
And at the same time, while the central bank in Wellington is flat if not dovish, the Federal Reserve may have to raise rates, so that, of course, continues to make shorting this pair attractive from a carry trade standpoint.
We are oversold, though, and short-term traders may come running to this pair to play the bounce, but I would be very quick to jump out of this pair unless, of course, there is some type of major shift in the fundamentals. As things stand right now, the fundamentals are very bad for New Zealand in comparison, and of course, it seems like there is a bit of a shortage of US dollars at the moment, so keep that in mind.
If we were to fall from here and break down below the 0.56 level, we could see the 0.55 level get targeted, but it won't be a straight shot, I don't think, unless, of course, we get some type of external reason. Therefore, the bounce makes sense, but again, I think this is something that will only offer a selling opportunity by the time it's all said and done.
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