NZD/USD Price Analysis: Capped Upside Near Downtrend Channel Resistance

• NZD/USD is struggling to build on last week’s modest recovery from a two-year low.
• A three-week downtrend channel caps the upside amid a stronger dollar.
• The decline looks supported ahead of Wednesday’s RBNZ and US CPI report.

The NZD/USD pair faced rejection near the top of a three-week-old descending channel and for now appears to have halted its modest rebound from last week’s two-year low.

Expectations of more aggressive rate hikes by the Fed helped the US dollar regain strong positive traction on the first day of a new week. Aside from this, the prevailing risk-off sentiment, amid fears of a recession, saw the safe-haven US dollar back close to two-decade highs and act as a headwind for the New Zealand dollar, which is sensitive to risk.

However, the downtrend remains supported, at least for now, as investors seemed reluctant to open aggressive positions ahead of this week’s key event. The Reserve Bank of New Zealand will announce its decision on Wednesday, which will be followed by the latest CPI inflation figures from US consumers.

From a technical point of view, a convincing breakout of descending channel resistance will suggest that the NZD/USD pair has formed a short-term bottom and will pave the way for further gains. The next relevant hurdle is near the 0.6245-0.6250 region, or the 100-period SMA on the 4-hour chart.

Some continuation buying will reaffirm a short-term bullish breakout and allow the bulls to reclaim the 0.6300 level. The momentum could extend further and push the NZD/USD pair towards the 0.6325 area.

On the other hand, the 0.6135-0.6130 zone, or the yearly low, could still protect the immediate drop before the 0.6100 level. This is followed by descending channel support, currently around the 0.6075 region, which if broken would be seen as a new trigger for bears and set the stage for further losses.

NZD/USD 4 hour chart

NZD/USD key levels