Fiscal Response Boosts Kiwi, Can it Rally?

NZD/USD Forecast:

• NZD/USD enjoyed a boost following New Zealand’s fiscal response to the coronavirus
• Since then, the United States has also floated several fiscal procedures that likely stemmed gains
• Therefore, a broader NZD/USD rally may require a larger recovery in sentiment beyond initial fiscal measures

NZD/USD Price Outlook: Fiscal Response Boosts Kiwi, can it Rally?

The New Zealand Dollar enjoyed a boost yesterday on the back of fiscal measures from the New Zealand government as NZD/USD edged higher in a sign markets were content with the procedures taken. Gains were short-lived however, as the United States doubled down on possible fiscal stimulus of its own, as both country’s look to soften the economic blow from coronavirus. Meanwhile, equities and other risk-sensitive assets enjoyed a relatively calm Tuesday that saw sentiment improve.

Nevertheless, outright Kiwi strength may be distant. Since New Zealand’s fiscal measures were answered by the United States, the initial boost has been undone and the US Dollar remains the “safer” option between the two pairs. Therefore, the fundamental backdrop seems tilted to further Greenback strength until a broader improvement in risk appetite can be recognized.

NZD/USD Price Chart: Daily Time Frame (May 2019 – March 2020)

At present, crude oil remains pressured and the efficacy of pledged fiscal responses stands unknown. Further still, the market’s “fear gauge” or VIX index, remains extremely high. Consequently, the vulnerability of risk-sensitive assets and currencies may see bears test subsequent NZD/USD support around 0.5888 which marks the pair’s 2004 May swing low. A break beneath the level could allow for further losses, potentially threatening possible support at 0.5658.

That being said, the pair is heavily oversold and if markets have adequately adjusted for the coronavirus, the Kiwi will be an attractive major currency to watch. In the meantime, however, volatility and uncertainty remain heightened and IG Client Sentiment data reveals retail traders are confident NZD/USD will climb in the days to come. With that in mind, it may be too early to explore bullish opportunities in the pair at this stage, but continued improvement in sentiment and risk appetite may allow for an attractive risk-reward setup.

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–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX