NZD/USD wounded around 0.6960, dollar bulls counterattack

Once again, NZD/USD buyers struggled to complete a healthy recovery above the 0.7050 handle.

The commodity pair failed a few steps away from its goal giving up all gains in less than 8 trading hours. As the time of writing, the Kiwi was trading wounded around 0.6970 which is not too far from its 50 SMA.

Dollar strength; going nowhere

Lee Hardman, a Currency Analyst at MUFG, noted compelling arguments to understand the greenback’s long-term strength, “However, the fundamental case for a stronger US dollar remains well supported beyond the near-term. Last week’s solid payrolls report which revealed a further tightening in labour market conditions had reinforced confidence amongst Fed officials that the US economy is closer to meeting its dual objectives of full employment and price stability which warrants a faster pace of monetary tightening in the coming years.”

Hardman concludes on the matter, “Boston Fed President Rosengren stated yesterday that a “somewhat more regular” pace of rate hikes is warranted this year which he expects to be steeper than what financial markets are currently projecting. Even the more dovish Atlanta Fed President Lockhart has acknowledged that there is the scenario in which he could envision the Fed raising rates on three occasions this year. As a result, we remain inclined to view any weakness in the US dollar in the near-term as likely to prove temporary.”

NZD/USD Technical Levels

This is the 2nd time in less than a week that the Kiwi is saved by the 50 SMA; Is this when it crashes? As long as prices do not open and close below the 0.6950 handle, bears may need to attack with both claws to create deep injuries in the pair. To the downside, the next logical support to find shelter seems on the 0.6900 (round figure), then 0.6880/50. 

On the other hand, a long-term view provides interesting evidence in case the dollar weakness decides to extend. As long as 0.6860 (short-term 23.6% Fib) remains protected, Kiwi buyers can target to the upside 0.7080 (short-term 50.0% Fib), then all things being equal the level 0.7210 (long-term 38.2% Fib) won't be ruled out.

USD: Positioning highlights reversal risk in near-term - MUFG