NZD/CAD has shed nearly 10% over the past 6-months, and its bearish trend structure suggests bears are preparing to push it lower still. Moreover, the yield differentials for NZD-CAD 2-year has broken to new lows which suggest further downside pressure for the commodity FX cross. Of course, this is helped by the fact that BOC’s base rate is 1.75% versus RBNZ’s 1%, providing greater demand for the Canadian dollar (relative to NZD) from yield-hungry investors. And Canada’s economic data continues to outperform expectations at a greater pace, relative to New Zealand’s.
A wider bearish channel remains intact on the daily chart and, whilst his could allow for a deeper correction in due course, we suspect it’s preparing for another leg lower. Prices have retraced from their lows yet stalled around a cluster of resistance below 0.8500, which comprises of the February low, a 38.2% Fibonacci level and of course the round number (and our original long-term bearish target) 0.8500.
Given the strength of the decline, it appears more likely the retracement is close to completion.
- On the four-hour chart, prices have tested a correction line, a break of which could confirm the resumption of the daily downtrend. RSI has also broken through its prior swing low to suggest bearish momentum is building on this timeframe.
- A break back above 0.8500 invalidate the near-term bearish bias and increases the potential for a deeper correction within the wider, bearish channel.
- Whilst 0.8500 caps as resistance, the bias is for a re-test of the 0.83500 area and potential to extend its decline within the bearish channel and head for the 2018 low.
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