US-China Deal Pressures USD, Kiwi Surges Amid Market Optimism

UPDATE: The US Dollar (USD) is facing significant pressure following a softer than expected US CPI report and a newly announced preliminary trade deal between the US and China over the weekend. This shift in market sentiment has led to a substantial boost for the New Zealand Dollar (NZD), which is poised for further gains in the wake of these developments.

As of this morning, the USD remains on the defensive due to an overall positive risk sentiment. Experts are predicting that this upbeat atmosphere will continue to weigh on the dollar in the short term. With no major US data expected to influence market behavior, the Federal Reserve is widely anticipated to announce a 25 basis point cut during its meeting tomorrow, signaling an end to quantitative tightening (QT). This decision is unlikely to create major market movement, given the absence of key forward guidance.

In New Zealand, the Reserve Bank of New Zealand (RBNZ) recently cut the Official Cash Rate (OCR) by 50 basis points, bringing it to 2.5%, the lower end of their estimated neutral range. Despite this easing, the RBNZ maintains a cautious stance as they navigate current economic conditions, as noted by RBNZ’s Conway.

The latest New Zealand Q3 inflation report met market expectations, reinforcing the projected 91% probability of another rate cut in November. On the technical front, the NZDUSD has broken above a critical resistance zone at 0.5780, attracting buyers eager to capitalize on bullish momentum.

Market analysts indicate that if the NZDUSD maintains this upward trend, it could target the next resistance level at 0.5850. Sellers, however, are watching closely; a drop below the 0.5780 support level could trigger renewed bearish bets.

Looking at the 4-hour chart, the upward trendline highlights ongoing bullish momentum. Traders anticipate that any pullbacks toward this trendline will see buyers re-enter the market, with defined risk parameters set below. Conversely, sellers are positioned to take action if prices break lower, potentially pushing the currency pair to new lows.

The 1-hour chart indicates that buyers are likely to step in around the established support and trendline, while sellers will seek downside breakouts to drive the price lower.

Market watchers are advised to stay tuned for the FOMC policy decision tomorrow and the high-stakes Trump-Xi meeting scheduled for Thursday. These events could further influence market dynamics and impact the USD and NZD trading landscape.

In this rapidly evolving situation, traders and investors are encouraged to remain vigilant as developments unfold. The balance between bullish and bearish forces will play a crucial role in determining the trajectory of the USD and NZD in the coming days.