General analysis NZDUSD for 20.05.2022

Current dynamics

After a collapse in early May, the NZD/USD pair showed strong gains over the last four days, fuelled by buyers reaction to positive news on New Zealand trade statistics, and consolidated around 0.63850 on correction after reaching highs in this time frame.

Such a rapid local rise in the pair was not only influenced by the recent weakening of the US dollar, caused by a decline in treasury bond yields and the loud news about the budget of New Zealand, but also by the latest data about an improved epidemiological situation in the Peoples Republic of China, the main trading partner, which consumes about 30% of the Kiwi national gross exports. The easing of covid restrictions in China will lead to an increase in economic activity and hence imports. New Zealands trade data for April showed a negative trend compared to March, with exports at 6.31B compared to 6.48B in March and imports at 5.73B compared to 7.06B in March. The trade balance was positive (584M in April compared to -581M in March).

One of the major statements in New Zealands new budget announcement is a $27 per week increase to the living wage for workers earning less than 70,000 a year who do not receive winter energy compensation. It is estimated that the programme will affect 2 million people and cost $820 million, which is a significant burden on the budget.

The US dollar is weakening amid local news at the state level, evidencing declining manufacturing activity and rising unemployment. The current weakening of US dollar is also influenced by the fact that since the last verbal interventions of FRS about a planned 50 bps hike in basic rate it has taken more than two weeks, and the next meeting with the announcement of the next actual value will take place only on June 10, which understandably cools the bulls fervor. The fragmentation of opinions on monetary policy in the top financial circles of the US establishment is also making matters worse.

The outlook for the NZD/USD is not only dependent on a possible further weakening of the US dollar but also on the decision to change the interest rate of the People’s Bank of China (PBOC). Presumably it will remain at the same level, but kiwi traders should keep this in focus.

Support and resistance levels

Alligator is hungry: its mouth is wide open, its jaw (blue line) is low under the lips and teeth (green and red lines), the instrument is in an uptrend. The nearest fractal above the alligator’s teeth (red line) is at 0.63970

Awesome Oscillator (AO) and Accelerator Oscillator (AC) are both in the green area, the bars are close to the zero level, which is a strong confirmatory buy signal.

• Support levels: 0.63520, 0.62930, 0.62350
• Resistance levels: 0.64660, 0.64330, 0.63970

Trading scenarios

• Short positions should be opened at the 0.63520 with target 0.52930 and stop-loss at 0.63750. Implementation period: 1-2 days.
• Long positions can be opened at the 0.63970 with a target of 0.52930 and a stop-loss at 0.63750. Implementation period: 1 day.