NZD/USD Rate Outlook Mired By Failure To Test January High

NZD/USD 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.

Image of IG Client Sentiment for NZD/USD rate

The IG Client Sentiment Report 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% lower from last week. The decline in net-long positions comes as NZD/USD appears to be reversing course ahead of the January high (0.7315), while the decline in net-short interest has helped to alleviate the crowding behavior as only 36.72% of traders were net-long the pair last week.

With that said, the decline from the January high (0.7315) may turn out to be an exhaustion in the broader trend rather than a change in market behavior as NZD/USD largely preserves the advance off of the 50-Day SMA (0.7161), and key market themes may keep the exchange rate afloat.

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