- The NZD / USD is trading higher in recent trading amid the weak US dollar, setting daily highs at 0.7080.
- The USD has experienced some weakness after the ECB did not seem overly concerned about the recent appreciation of the euro.
Amid a bout of USD weakness in recent trading, the NZD / USD It has returned to Wednesday’s highs above 0.7090, and recently crossed the 0.7080 again. Currently, the pair is trading with gains of just under 1% on the day or around 70 pips.
ECB opens door to further USD weakness
Looking ahead to the ECB’s rate decision on Thursday, dollar bulls expected the ECB to take a firmer stance on the recent strength of the euro. In fact, since the ECB meeting in November, the EURUSD has rallied from below 1.1900 to current levels at 1.2100. However, the upward movement has been more a function of USD weakness than EUR strength, which means that, trade-weighted, the EUR is not as strong as the EUR / USD.
The USD bulls were disappointed as the ECB did not employ any reinforced language in opposition to the strong EUR. Rather, the ECB reiterated that the appreciation of the euro contributes to moderating price pressures and that the bank will continue to monitor the evolution of the exchange rate with respect to its possible implications for the inflation outlook in the medium term. At the press conference, ECB President Christine Lagarde offered little more.
Traders seem to have taken this as something of a “green light” for EUR / USD to appreciate further, with the pair moving above 1.2100 and towards 1.2150. As a result, the USD has seen a wide slide, which actually seems to benefit the AUD, NZD and CAD the most. Indeed, the lack of a sense of urgency to weaken its currency shown by the ECB on Thursday may ease pressure on the strength of other currencies from concerned central banks such as the RBNZ, which could indirectly also be helping the NZD.
Looking ahead for the NZD, the focus may shift from global issues to New Zealand national events when New Zealand’s November business PMI data is released at 9:30 PM on Thursday.
NZD / USD consolidated within the pennant over the medium term
Recent price action has confirmed that the NZD / USD has been consolidating within a pennant since late November. On the downside, an uptrend linking the lows of November 26, December 7 and 9 has been supporting price action, while an uptrend, a downtrend linking the highs of December 3 and 9 has been acting as resistance. A break to the upside of this pennant would test the 0.7100 level and a possible move back to multi-year highs. Meanwhile, a break to the downside of this pennant would mean that the 0.7000 level would be under threat, as well as a pullback towards the 21-day moving average at 0.6979.
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