NZD/USD Analysis:

• The New Zealand Dollar has benefitted form a shift in risk sentiment towards the Asia-Pacific nation as Covid vaccines are rolled out across developed Western economies
• Bullish momentum remains for now, supported by bullish candle (daily chart)
• IG Client Sentiment provides a mixed signal despite 73.8% net-short positioning

Kiwi Dollar Stronger amid Sentiment Shift and Weaker USD

New Zealand is one of a few nations that managed to significantly reduce the economic impact the coronavirus has had on its local economy while managing infections in much the same way. The growth-linked currency forms part of a ‘core-perimeter model’ alongside Australia and China, as it tends to benefit from improving economic conditions related to global recoveries but China in particular.

The New Zealand dollar has benefitted from arrangements of developed Western nations to receive the long awaited Covid-19 vaccine. As a result, markets seem to have shifted towards riskier assets as the future economic landscape appears somewhat clearer and economies can attempt to get back on track without having to undergo numerous lockdowns.

Risk Events on the Horizon:

• RBNZ already held its last meeting of the year on November 11
• US Federal Reserve Bank to hold its year end meeting next week, December 16

For all central bank related releases and events see the DailyFX Central Bank Calendar

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Bullish Price Action May Fuel Further Upside

Taking a look at the daily chart, NZD/USD has broken above the zone of consolidation and has continued since. Adding to the bullish momentum is the appearance of the bullish candle, which may hint at a continued move higher.

NZD/USD Daily Chart: Bullish Candle

Chart prepared by Richard Snow, IG

This type of candle is similar to the bullish engulfing formation, although in this context the bullish candle isn’t appearing at the bottom of a down trend. Nevertheless, the candle supports a bullish theme/bias and is shown in greater detail below:

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Taking a look at the weekly chart, the MACD shows no sign of slowing down as the MACD line remains above the signal line. Continued bullish momentum could see the pair move towards the 0.7240 and 0.7435 levels of resistance.

However, should price action hover around 0.7060 without a convincing break higher, the pair could see a retracement down towards 0.6940 or even 0.6790 (current support levels)

NZD/USD Weekly Chart: Key Technical Levels

Chart prepared by Richard Snow, IG

Client Sentiment Mixed Despite Overwhelming Short Positioning

• NZD/USD: Retail trader data shows 26.20% of traders are net-long with the ratio of traders short to long at 2.82 to 1.
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests NZD/USD prices may continue to rise.

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• The number of traders net-long is 2.19% lower than yesterday and 15.21% lower from last week, while the number of traders net-short is 7.51% lower than yesterday and 0.95% lower from last week.
• Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed NZD/USD trading bias.

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX