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analysis and trading plan for NZDUSD

August 20, 2020

August 20, 2020

Analysis of NZDUSD and forecast for the NZD priceMikhail Hypov

This analysis is devoted to the New Zealand dollar’s prospects, the currency that is tenderly called “kiwi” after a popular local bird.

The article covers the following subjects:

General analysis of NZDUSD

When delving into the peculiarities of trading this currency, we need to mention the Reserve Bank of New Zealand, or RBNZ. This establishment functions like the Fed in the USA, and its monetary policy is ultra soft. Last Wednesday, the RBNZ dropped the refinance rate to the historic low of 0.25%. However, this event is predictable and fits well into the global trend. What draws a particular attention is RBNZ Governor Adrian Orr’s ultra-soft rhetoric. He says the RBNZ will continue and even extend its monetary easing policy. Mr Orr said the bank had been preparing to use the negative refinance rate and expand the bond-buying programme.

![LiteForex: Forecast for the NZ dollar: analysis and trading plan for NZDUSD][1]

The effect produced by RBNZ Governor’s statement is best seen in the US and NZ bond yields chart above. These two indicators don’t always correlate, but recently, their evolutions have become totally opposite. The blue NZ bond yield curve is directed downwards while the orange US 10-year bond yield curve is directed upwards. If we extend this situation to the NZDUSD rate, we’ll see a strong bearish pressure on the NZ dollar from the fundamental point of view. Objectively, the NZ dollar is under pressure due to the expectations that arise from Adrian Orr’ speeches. It’s a tricky situation for sellers because markets may gradually factor all the risks in the price.  COVID-19 and the fear of another wave may fuel the bearish flame too. I need to remind you that over 10% of New Zealand’s GDP comes from tourism. The borders are still closed, and if the number of new cases increases, there’s no chance that the situation in the tourist sector will improve. These fears put a strong pressure on the kiwi’s rate and they need to be considered when making forecasts. On the whole, the NZD looks weak in the short term. Let’s check this presumption using analytical tools.

Technical analysis of NZDUSD

![LiteForex: Forecast for the NZ dollar: analysis and trading plan for NZDUSD][2]

As usual, let’s examine the 12-month time frame first. The bearish trend prevailed from the 70s and up to the 00s. An ascending wave starts in 2002. The latest candlestick broke the bearish channel line with a strong pullback. The correction of the latest candlestick broke 0.382 Fib of the bearish trend and failed to reach the 0.232 level. This fact allows us to expect a future reversal and an impulse wave structure’s eventual development. The key support levels are 0.512 USD and 0.413 USD, the bottom of the 2002 growing wave.  The key resistance level is in the area of the 40-year maximum at 0.883 USD.

![LiteForex: Forecast for the NZ dollar: analysis and trading plan for NZDUSD][3]

A whole series of bullish signals confirm a potential reversal on the monthly time frame:

  1. NZDUSD went outside the bearish trading channel and is located in the highest market activity zone.
  2. The downtrend was broken amidst growing trading volumes.
  3. TD Alignment indicator crossed the balance level from below and reserves potential for growth.
  4.  MACD moving averages show a bullish divergence with the price while the histogram moved to the positive zone.

![LiteForex: Forecast for the NZ dollar: analysis and trading plan for NZDUSD][4]

On a weekly time frame, NZDUSD’s dynamics becomes more bearish based on a few signals:

  1. The price reached the balance level according to the Pivot indicator and failed to consolidate above.
  2. At the beginning of 2020, the kiwi collapsed against the dollar, going outside the limits of TD candlestick annual projection marked as a grey rectangle.  Thus, the price is unlikely to consolidate above the tolerance zone  - the violet rectangle - in 2020.
  3. The local uptrend is accompanied with falling trade volumes. The impulse is fading.
  4. TD Alignment left the overbought zone and is directed downwards.

![LiteForex: Forecast for the NZ dollar: analysis and trading plan for NZDUSD][5]

On the daily time frame, we see a clear five-wave impulse with extension in the first wave.  The price broke the bullish trend, having marked the end of the whole structure and a transition to a correction, where wave A already reached an important level of 0.5 of the fifth wave and may be considered to be completed.  With the bullish sentiment of the monthly time frame, correction ABC is likely to stay within the limits of the fifth wave and the white area of the trading channel.

Four signals confirm the correction on the daily time frame:

  1. The bullish trend is crossed from above.
  2. The price’s located below the Pivot balance level of the monthly pattern.
  3. Sellers’ trade volumes are growing.
  4. TD Alignment crossed the balance level from above, which reserves room for a further decrease.

Having analysed the pair on the Y1 to D1 time frames, we can form a trading plan for the period from a few months and up to several years.

Trading plan for the NZD for August-September 2020

![LiteForex: Forecast for the NZ dollar: analysis and trading plan for NZDUSD][6]

A bearish scenario is given priority on the daily time frame in the nearest month. The level for opening short positions is at 0.6625, the limit of the TD tolerance zone. The current price isn’t really attractive, but since wave C is very likely to begin, we can have a small volume of short positions at 0.655 USD not to miss the move. Stop loss should be placed above the fifth wave’s peak at 0.6715. As the white trading channel and the fourth wave’s bottom limit the correction, the target of short positions is in the range of 0.636 - 0.635 USD. Based on the entry point, the risk/reward ratio varies from 3 (0.662 USD) to1.32 (0.655 USD).

Long-term trading plan for NZDUSD for the end of 2020 and the

beginning of 2021

![LiteForex: Forecast for the NZ dollar: analysis and trading plan for NZDUSD][7]

Based on the previous monthly scenario and trading signals, I can say that long positions will be given priority in the next 6 months. The entry point is supposed to be at the lower limit of the white trading channel of 0.634 USD.  The breakout of the 30 September local low at 0.620 USD from above will cancel this scenario. Thus, losses should be fixed below that level. Profits may be fixed in part at 0.670 USD, the area of the fifth wave’s peak.  The upper channel limit at around 0.74 USD may be considered to be the final target.  This trade is relatively safe as the Profit/Risk ratio is over 5. Still, your personal risk management rules should never be neglected.

Multi-year trading plan for NZDUSD

![LiteForex: Forecast for the NZ dollar: analysis and trading plan for NZDUSD][8]

The situation isn’t clear in a multi-year context. On the one hand, the global ascending trend was broken; on the other hand, it returned to its trading range and went out above the local bearish channel. Most likely, the kiwi won’t be allowed to consolidate substantially, given the negative fundamental background. However,  NZDUSD won’t be in a stable long-term trend because of the US soft monetary policy. If the NZ dollar should consolidate, it won’t exceed 0.74 - 0.75 USD. The accumulation of local resistance levels will hamper a further movement.  The key level for cancelling the bearish scenario is at 0.751 USD, marked as a red segment.  If the price gets higher, the next target of the global bullish trend may be expected at 0.88 USD. The key level for confirming the bearish scenario is the lower limit of the global bullish trend (green segment). In this case, a strong support level at 0.5124 USD will be the next target.

Regardless of your investment horizon, you should find a reliable Forex broker. I suggest trying  [LiteForex][9]’s demo account here and now to get your first risk-free trading experience! Have a go!

Good luck and profits, everyone!

Yours,

Michael @Hypov

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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  • I recommend trying to trade with a reliable broker [here][10]. The system allows you to trade by yourself or copy successful traders from all across the globe.
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  • Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

Price chart of NZDUSD in real time mode

![Analysis of NZDUSD and forecast for the NZD price][12]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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