After a short pause from mid-July to mid-August the U.S. dollar continued its rise against other currencies. This week the 20-year highs of the dollar index were rewritten again. And so far there are no significant prerequisites for the change of the current trend.
The hopes that a decline in inflation and GDP will make the Fed soften its "hawkish" stance did not materialize. Last week, U.S. regulator Chairman Jerome Powell confirmed the need for further monetary policy tightening, and this week he was supported by almost all heads of the Federal Reserve Banks.
There are two important events before the Fed's next policy meeting on September 21 that may affect the final monetary policy decision. While we still have to wait a week and a half for August inflation data, we will be able to see the US labor market statistics from last month already today. However a good result on new jobs and unemployment rate is rather undesirable for the financial markets: if the labor market is OK, the Fed has no reason to stop its monetary tightening. Volatility is likely to rise today.
Non-reserve currencies are the most vulnerable in the current situation. One of the examples of such victims is the New Zealand dollar. Despite the fact that the key rate in this country has already reached 3% (and is forecasted to reach 4% by the end of the year), this does not help the national currency much. Actually, except monetary tightening, there are no other growth drivers for NZDUSD.
Now the pair NZDUSD returned to the July lows, that were updated today. The next downside target is the level of 0.592, which was the support in April-May 2020. At the same time, the RSI indicator came close to the oversold zone, and in the coming days we can expect some rebound up. Resistance in the case of an upside attempt is the level of 0.62, where the falling trend is very likely to resume.
Following trading strategies can be offered:
1) Sell NZDUSD at the current price. Take profit – 0,592. Stop loss – 0,62.
2) Sell NZDUSD as it rises in the range of 0.615-0.62. Take profit – 0,592. Stop loss – 0,625.
Traders may also use Trailing stop instead of a fixed Stop loss at their discretion