NZD/USD retreats from daily highs ahead of FOMC minutes

• NZD/USD rose to a high of near 0.6000 but settled near 0.5950.
• RBNZ held rates steady at 5.5% as expected but sounded hawkish.
• Investors await key FOMC minutes for forward guidance.

On Wednesday, the NZD/USD traded strongly following the Reserve Bank of New Zealand (RBNZ) decision but failed to maintain its momentum and backed away towards 0.5950. On the other hand, the USD measured by the DXY trades flat, ahead of the Federal Open Market Committee (FOMC) minutes from the July meeting. Housing data from July didn’t impact the USD across the board.

The Reserve Bank of New Zealand (RBNZ) held its rates at 5.5%, as expected, but there were some hawkish signals in the statement. The Committee stated that the Official Cash Rate (OCR) “show remains at restrictive levels” for the foreseeable future and pointed out that economic activity and inflationary pressures do not slow down much as expected. In that sense, markets will model their expectations on incoming data to see whether the RBNZ is eventually forced to hike again; as for now, the World Interest Rate Possibilities tool (WIRP) suggests that the markets are confident that the bank won’t hike this cycle again and will start to ease in H2 2024.

Housing data from the US from July came in strong. Building permits rose by 0.1% vs the expected 1.7% contraction, while housing starts increased by 3.9%, also higher than the 2.7% expected. That being said, the session's highlight will be the release the FOMC minutes from July, where investors will look for clues regarding forward guidance. The latest data from the US revealed that the economy is clearly strong and that inflation is somewhat softish but still has some upside risk. As for now, markets expect the Federal Reserve (Fed) to skip in September, and the odds of a 25  bps hike in the November meeting rose to nearly 40%, according to the WIRP tool.

NZD/USD Levels to watch

Based on the daily chart, the NZD/USD exhibits a bearish outlook for the short term. Both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in negative territory, with the RSI below its midline and showing a southward slope. The MACD is also displaying red bars, indicating a strengthening bearish momentum. Additionally, the pair is below the 20,100 and 200-day Simple Moving Averages (SMAs), suggesting that the bears are firmly in control of the bigger picture, leaving the buyers with tasks to accomplish.

Support levels: 0.5950, 0.5930, 0.5920.

Resistance levels: 0.6000, 0.6020, 0.6050.

NZD/USD Daily chart