NZD/USD extends gains after PBOC strengthens the yuan at the fix today
The squeeze higher continues for the kiwi against the dollar after price pulls off a break of the 200-day MA (blue line) following the positive tone from the Trump-Xi meeting. As mentioned last week, from a technical perspective, the meeting will set the tone as to which side of the line price will break towards.
And with buyers now gaining control after a break above the 200-day MA, the short squeeze extends further today as price is now targeting the 0.7000 handle before profits will be booked. There is some minor resistance from the 22 May high @ 0.6975 but that’ll act more as a speed bump before the 0.7000 handle is reached.
From here, that is where things will get tricky in my view. We’re now seeing a rather substantial squeeze from record shorts but is there anything to justify the kiwi to strengthen further?
The RBNZ is still nowhere near to raising rates and with the economy still nowhere near convincing enough to warrant a change in policy, it’s tough to argue for a case to be bullish the kiwi well above the 0.7000 handle in my view.
However, for a further push higher, the narrative may be to look towards further weakness in the dollar moving forward. With the Fed possibly pausing the tightening cycle next year and now with yield curve worries, it’s making a stronger case to be bearish in the dollar closer towards the middle of 2019. This month’s FOMC meeting will be a big one in terms of providing clarity on those two matters, so let’s see.
In the meantime, it’s still all about the squeeze but expect the upside momentum to level off a little as we approach the 0.7000 mark.