A weaker dollar on Friday resulted in a recovery in NZD/USD but gains were marginal and the currency pair is seen remaining within a range.
In the month thus far, NZD/USD has traded in a range with sellers capping rallies around 0.6960 while declines have been bought around 0.6840. During the same time frame, the US dollar index (DXY) has declined over 2%.
DXY had found support at 97.35 yesterday which was previous support in December 2015 and resistance in July 2016. The index recovered sharply from the support level but was unable to sustain the gain. Persistent selling today shows the index dropping below support to trade at fresh six-month lows.
NZD/USD has been consolidating near important support for most of the month but a downside break appears unlikely in the absence of a significant recovery in the dollar.
The economic calendar pertaining to NZD/USD was relatively light in terms of high impacting data. Fed member Bullard commented on monetary policy in a presentation held in Washington and shared a dovish outlook. Bullard stated that the market reaction to the March rate hike suggests that the Fed is looking to tighten at a pace that is too aggressive, adding that recent economic data has been weaker than expected. He also indicated that the relation between the unemployment rate and inflation suggests that labor market gains won’t cause a sharp rise in inflation, even if the unemployment rate declined substantially further.
Bullard’s reputation as a dove resulted in a relatively subdued reaction in the markets. Upcoming Fed member speech will reveal if other members carry the same view which will be important, especially with the futures markets pricing in a 74% chance of a move in June.
The FOMC meeting minutes will be released next week and will also provide a closer look at the Fed’s stance. The central bank had released an optimistic statement following the meeting despite weaker first quarter growth and a notable decline in the PCE price index.
Price action for the month thus far has been contained within a declining channel which is best seen on a 4-hour chart. Resistance falls around 0.6940 while the lower line falls near 0.6820 to mark range support. A range break stands to accompany follow through.
NZD/USD posted a bearish engulfing candle on Thursday which offers a near-term bearish signal while below this weeks high.