NZD/USD Eyes Reversal After Three-Day Rally,Supply Zone in Focus

20 Eyl

The NZD/USD pair continues its upward momentum for the third consecutive day, trading around the 0.6250 mark during the early European hours on Friday. This resilience comes despite concerning economic data from New Zealand, which showed the economy contracted by 0.2% quarter-on-quarter in the second quarter of 2024, bringing the country perilously close to a recession. While this decline was less severe than the anticipated 0.4% contraction, it still underscores the economic challenges the nation is facing. On a year-on-year basis, the economy shrank by 0.5%, in line with market expectations.

The weak GDP figures have solidified market expectations of another 25 basis point rate cut by the Reserve Bank of New Zealand (RBNZ) in October, as the central bank attempts to stabilize the slowing economy. However, despite these looming concerns, the NZD/USD pair has managed to maintain its bullish trajectory, likely supported by broad-based U.S. dollar softness and improving risk sentiment in global markets.

From a technical perspective, the NZD/USD is currently trading within our identified Supply area. This zone has historically acted as a strong resistance level, and we are closely monitoring the price action for signs of a potential reversal. With the pair approaching key technical levels, a pullback could be imminent if bearish signals start to emerge. The 0.6250 region remains crucial, and a sustained move above this level would challenge our forecast for a reversal, while a rejection here could validate a short position.

Traders should also keep an eye on upcoming economic releases and central bank decisions, which could further impact the outlook for the NZD/USD pair in the near term. As the RBNZ rate cut approaches, market volatility may increase, providing more clarity on the direction of the pair.

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