October 21, 2021 14:28:31

The Kiwi is the top performing major in October due to the buoyant risk mood and rising inflation expectations. A hawkish central bank also helps with a solid domestic recovery pushing the RBNZ into action soon. In fact, one prominent, local bank expects six more rate hikes – one at each meeting between now and August, taking the official cash rate (OCR) to 2%.  

We note that NZD is the only overbought G10 currency versus the dollar so position squaring may be a risk. Slowing Chinese growth may also impact the kiwi going forward.

After making a cycle low at 0.6859 last month, NZD/USD has been on a tear. Long-term moving averages have been broken with the pair pushing up through the 200-day SMA at 0.71. Monday saw the midway mark of the February to August move breached at 0.7133.

Overnight, we made a new cycle high at 0.7218, having gone through the 61.8% Fib level. But prices are now in overbought territory according to momentum oscillators with the daily RSI at 70 and sellers have stepped in. The September high at 0.7170 is initial support, ahead of the 50% retrace level.

If bulls can consolidate up here with commodity prices retaining a positive outlook, upside targets are the May high at 0.7316 which sits near the 78.6% Fib level at 0.7322.