NZD/USD eagerly awaits RBNZ interest rate decision

After completing the Inverse Head & Shoulder (H&S) price pattern last week, NZD/USD slid down about 100 pips, leaving a classic shooting star candle on the chart which is acting as a critical resistance for the pair. Investors are seen very cautious ahead of the Reserve Bank of New Zealand (RBNZ) interest rate decision which is scheduled on Wednesday.

At the time of writing, the pair is being traded near 0.8457. The first resistance is being noted around 0.8522 which is the high of the shooting star. A break above 0.8522 shall expose the channel resistance as demonstrated in the following chart.

On the downside, support is seen near 0.8400 handle which is the lower trendline support. A break and daily close below the channel support might aggravate the bearish momentum, targeting 0.8241 which is the swing low of the previous downward wave. The bias shall remain bullish as far as the pair is being traded above 0.8241. It is pertinent that both the Relative Strength Index (RSI) as well as the Commodity Channel Index (CCI) have entered into the overbought territory with readings above 70 and 100 respectively.

On Wednesday, RBNZ is likely to announce a hike in the benchmark interest rate to 2.75%, according to the average forecast of different analysts, surveyed by Bloomberg. Rapid increase in the house prices has provided adequate reasons to the policymakers for the first rate hike. The construction costs in New Zealand rose last year at the fastest pace since 2008 thanks to the record low interest rate, high purchasing power, low jobless rate, and tempting incentives offered by the government to the housing sector. Keeping in view the sharp increase in the price of NZD/USD, due to the optimism of rate hike, it appears that the pair will show only a moderate spike if RBNZ announces the interest rate hike. 

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Usman Ahmed

Usman Ahmed is an individual forex trader and market analyst. He holds a Masters of Business Administration (MBA) degree. His work includes fundamental and technical reports on various currency pairs, commodity futures and stock markets. His technical analysis features price action strategies.

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