The NZD/USD Outlook has come up with a fresh setback. The long-standing upward trend for the currency had changed to a downward sloping pattern as it started losing its momentum.
First, as we saw, the very steady upward trend in the currency was disrupted by the exchange rate change, followed by the disappointing devaluation of the Australian dollar. Second, as mentioned earlier, the Australian dollar was now devalued, a movement that was later reversed by the US Federal Reserve. Consequently, the NZD/USD Outlook is now mired ahead of RBNZ as RSI has moved into oversold territory.
Now then, as far as the RBNZ is concerned, RBNZ is yet to show any weakness in response to the changing trends. As a matter of fact, the main attraction of the currency remains intact, despite the weakened Australian dollar. Although the NZD/USD Outlook was hit when the Australian dollar slid below 90 AUD/USD, the RBNZ has yet to show any signs of weakness.
One of the first things that the RBNZ does not want to do is to let the exchange rate move sideways. Indeed, if this happens, it would not be easy for the RBNZ to fully avoid volatility in the currency markets.
Instead, the RBNZ is eager to keep the exchange rate above 90 AUD/USD, as it believes that this will help prevent further RSI from sliding into oversold territory. This, after all, is the primary reason why the RBNZ wants to maintain the high exchange rate – to prevent volatility in the currency markets and therefore to retain the gains that are being made today.
To understand the latest NZD/USD Outlook, we have to look at the recent developments. As we mentioned earlier, as was the case with the Australian dollar, the Australian currency has now devalued further. This has forced the RBNZ to engage in a trade off with the exchange rate, as the RBNZ still wants to avoid any further devaluation.
However, there is one condition that has been overlooked so far – the RBNZ must also keep the exchange rate above 90 AUD/USD. As we discussed earlier, this is the sole reason why the RBNZ wishes to engage in a trade off. If this condition is breached, there is no doubt that RSI will fall into oversold territory, as we can see in the chart above.
If the RBNZ fails to do so, then there is the risk that RSI will sink below 90 AUD/USD, which would lead to volatility in the currency markets again. It is therefore important for the RBNZ to make sure that it avoids over-valuation and allows the exchange rate to move sideways.
So far, as we saw earlier, the RBNZ has done just that. It has kept the exchange rate above 90 AUD/USD, while avoiding any fall into oversold territory.
This way, the RBNZ continues to prevent any further slip into oversold territory, so as to allow the exchange rate to continue moving sideways. Moreover, as is the case with the exchange rate, RSI is yet to slip below the 65 level. We hope that this remains the case for a long time to come.