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11 Sep 2018

NZD/USD review: Two-year yield spread continues to drop in the NZD-negative manner

  • The NZD/USD fell to the lowest level since January 2016 yesterday and could drop further as the two-year US-NZ yield spread has hit a fresh all-time high today.
  • The 14-week relative strength index has not confirmed a 32-month low seen in the NZD/USD. A positive weekly close would confirm a bullish RSI divergence.

Currently, the NZD/USD pair is trading at 0.6523, having clocked a session high of 0.6531 earlier today.

The recovery from the 32-month low of 0.6512 clocked yesterday, and rightfully so, as the spread between the US two-year treasury yield and the New Zealand two-year government bond yield has risen to a record high of 105 basis points in the USD-positive manner.

Further, it is feared that the Trump administration may opt for an all-out trade with China. As a result, there is little incentive for the NZD bulls to step into the market.

That said, a corrective rally could pick up the pace if the pair ends this week on a positive note, confirming a bullish divergence of the 14-week relative strength index (RSI). Moreover, the pair printed a multi-month low of 0.6512 yesterday, but the weekly RSI has not confirmed the same.

As for today, the pair will likely take cues from the AUD/USD and USD/CNY pairs and broader market sentiment.

Hourly chart

A break above the descending trendline seen in the above chart could yield a stronger corrective rally toward 0.66 (psychological resistance). However, gains could be short-lived as the major moving averages (50-hour, 100-hour, and 200-hour) are trending south, indicating the path of least resistance is to the downside.

Resistance

R1: 0.6542 (250-hour moving average)

R2: 0.6556 (trendline hurdle)

R3: 0.6590 (downward sloping 200-hour moving average)

Support

S1: 0.6512 (previous day's low support on the hourly chart)

S2: 0.6448 (Feb. 2016 low)

S3: 0.64 (psychological level)

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