New Zealand Dollar Talking Points
NZD/USD[1] appears to tracking the weakness in equity prices as the S&P 500[2] pulls back from the session high (3950), and swings in risk appetite may continue to sway the exchange rate as the US Dollar[3] still reflects an inverse relationship with investor confidence.
NZD/USD Rate Outlook Mired by Failure to Test January High
NZD[4]/USD[5] climbed to fresh monthly highs after breaking out of the descending channel formation from earlier this year, but the exchange rate seems to have reversed course ahead of the January high (0.7315) as the US Dollar appreciates against its major counterparts.
In turn, NZD/USD may consolidate ahead of the next Reserve Bank of New Zealand (RBNZ) meeting on February 24 as the country currently faces a three-day lockdown, and the threat of a protracted recovery may encourage Governor Adrian Orr and Co. to further support the economy as the central bank is “prepared to lower the OCR (official cash rate) to provide additional stimulus if required.”
Until then, key market themes may influence NZD/USD as the Federal Reserve stays on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month,” and the tilt in retail sentiment also looks poised to persist as traders have been net-short the pair since October.
The IG Client Sentiment report[6] shows 39.68% of traders are currently net-long NZD/USD as the ratio of traders short to long stands at 1.52 to 1.
The number of traders net-long is 0.67% lower than yesterday and 8.59% lower from last week, while the number of traders net-short is 9.76% lower than yesterday and 11.00%
