New Zealand Dollar Soars on Upbeat Risk Sentiment, US Dollar Weakens

Softer US Dollar Lifts Risk-Sensitive Currencies

The US Dollar weakened due to concerns over the US economy. Recent data releases, including the S&P Global PMI survey for April and weak Q1 GDP figures, painted a less-than-rosy picture. This, in turn, boosted demand for risk-sensitive currencies like the NZD.

The US Dollar Index (DXY) hovered near the crucial support level of 105.50, reflecting the diminished confidence in the US Dollar.

Fed Policy Meeting in Focus, RBNZ Job Data on Watch

Investor attention now shifts towards the Federal Reserve's monetary policy decision scheduled for Wednesday. Market expectations, as per the CME FedWatch tool, suggest no change in interest rates, which will likely remain within the 5.25%-5.50% range. However, any new guidance on future rate hikes from the Fed could significantly impact the USD's trajectory.

On the New Zealand front, the upcoming release of Q1 Employment data on Tuesday is a key event to watch. Analysts anticipate a slower pace of job growth at 0.3%, compared to the previous quarter's 0.4% increase. Additionally, the Labor Cost Index, which reflects inflationary pressures, is expected to rise moderately by 0.8%, following a 1.0% growth in Q4 2023. A tight labor market could prompt the Reserve Bank of New Zealand (RBNZ) to maintain its restrictive monetary policy stance for an extended period.

NZD/USD Technical Outlook: Bullish Bias Emerges

The NZD/USD pair staged a strong comeback after encountering buying interest around 0.5850. This surge followed a Double Bottom formation, signaling a potential bullish reversal. The pair has successfully climbed above the horizontal resistance level established at the April 1 low (around 0.5939), which now acts as support for the NZD bulls.

The short-term outlook leans bullish as the NZD holds onto gains above the 20-period Exponential Moving Average (EMA) currently positioned near 0.5950. However, the 200-EMA at around 0.5990 presents a significant hurdle for further upside.

The 14-period Relative Strength Index (RSI) has crossed above 60.00, signifying the emergence of bullish momentum.

A decisive break above the psychological resistance of 0.6000 could propel the NZD/USD pair towards the April 4 high of 0.6050 and the round-level resistance of 0.6100.

Conversely, a decline below the April 16 low of 0.5860 would indicate renewed weakness. This could drag the pair down to the September 8, 2023 low of 0.5847, followed by the round-level support at 0.5800.