Last night, the New Zealand dollar tumbled after the Reserve Bank of New Zealand unexpectedly cut rates for the first time in four years. The central bank hinted that more cuts may be on the horizon and that exchange rate remains high. The 25 basis point cut took the official cash rate to 3.25%. This erases the rate hike that took place in July 2014. The RBNZ also shifted their bias to neutral from hawkish and this could weigh on the kiwi in the short-term.
Price action on the NZD/USD daily chart shows the overnight plunge broke below the psychological .70 handle. Early in New York, price has remained heavy and tentatively found support from the .6987 level. If downward momentum returns, deeper support may come from .6824, which is the 161.8% Fibonacci expansion level of the B to C leg. If this support level is reached and holds, we could see the formation of a bullish ABCD pattern that could support a brief rebound.
To the upside, .7150 will provide key resistance. If we do see a sustained recovery, major resistance will come from the 50-day SMA, which is currently trading around the .7420 region.
The trade: Sell NZDUSD at .6995 with a stop loss at .7052 and a take profit at .6824. The Risk/Reward Ratio is 1:3.
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading