NZD : Sell Signal

(Tue, 24 Nov 2020). NZD/USD snaps the series of higher highs and lows carried over from late last week as the Purchasing Managers Index (PMI) for US manufacturing unexpectedly improves in November, with the index climbing to 56.7 from 53.4 the month prior despite forecasts for a 53.0 print.

The bullish US Dollar reaction to the data could indicate expectations of seeing the Federal Reserve on the sidelines at its last meeting for 2020, and the central bank may stick to the same script going into the year ahead as Chairman Jerome Powell and Co. vow to “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace.”

However, the Federal Open Market Committee (FOMC) may come under pressure to further support the US economy as Treasury Secretary Steven Mnuchin lays out plans to wind down the emergency lending facilities, and it remains to be seen if the FOMC will reveal a more detailed forward guidance at the December 16 interest rate decision as Chairman Jerome Powell and Co. are scheduled to update the Summary of Economic Projections (SEP).

Until then, key market trends may continue to influence NZD/USD even though the Reserve Bank of New Zealand (RBNZ) implements a Funding for Lending Program (FLP) as Governor Adrian Orr and Co. keep the official cash rate (OCR) at the record low. In turn, swings in risk appetite may sway the exchange rate as the US Dollar broadly reflects an inverse relationship with investor confidence, and the tilt in retail sentiment also looks poised to persist over the coming days as the crowding behavior from earlier this year resurfaces.

With that said, key market trends may keep NZD/USD afloat as the exchange rate cleared the 2019 high (0.6942) earlier this month, but the exchange rate may consolidate going into the end of the month as the Relative Strength Index (RSI) appears to be falling back from overbought territory.

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