NZD/USD Bulls Hope for Support at 0.5770 After Recent Pullback

Economic

Summary:

The NZD/USD pair has retreated from its year-to-date high, now trading below the 0.5800 mark as the US Dollar rebounds from a five-month low.

BUY NZDUSD

Close Time

CLOSED

0.57800

Entry Price

0.59300

0.57200

0.57787 -0.00253 -0.44%

60.0

Pips

Loss

0.57200

Exit Price

0.57800

Entry Price

0.59300

The NZD/USD pair, which touched a year-to-date (YTD) high of 0.5830 on Tuesday, is now retreating sharply from those levels. As the early European session unfolds, the pair has been dragged below the 0.5800 handle, with the selling momentum gaining strength. The recent downside shift comes as the US Dollar (USD) finds some footing after a series of losses, contributing to downward pressure on the Kiwi.

After a period of sustained weakness, the USD has regained traction, snapping a three-day losing streak. The greenback's recovery is partly driven by repositioning in anticipation of the Federal Reserve’s highly anticipated two-day meeting, which will conclude with the release of new economic projections. In addition, geopolitical tensions in the Middle East have added an extra layer of uncertainty, leading to a flight to safety, which has benefited the USD as a safe-haven asset. These factors have conspired to drive flows away from the perceived riskier New Zealand Dollar, which has been under pressure as global risk sentiment fluctuates.

Despite the USD's short-term rebound, its longer-term outlook remains clouded by growing expectations that the Federal Reserve may need to implement multiple rate cuts this year to combat the potential economic slowdown exacerbated by President Trump’s tariff policies. As concerns mount over the negative economic impact of these trade policies, market participants are increasingly convinced that the Fed will continue to ease monetary conditions to support economic growth. This growing consensus will keep the focus squarely on the Fed’s updated economic projections, which are due to be released later this week.

The so-called "dot plot" from the Federal Open Market Committee (FOMC) will be crucial for providing insights into the Fed’s future rate-cut trajectory. Markets are eager to see whether the Fed signals any changes to its stance, particularly in light of recent economic data and Trump’s ongoing tariff agenda. Any sign of aggressive dovishness from the Fed could weigh on the USD, particularly against risk-sensitive currencies like the NZD.

However, while the USD is gaining some strength in the near term, a sustained rally remains unlikely, as markets remain wary of the broader economic risks associated with the current geopolitical climate and trade tensions. This suggests that any meaningful USD appreciation may be limited, which could, in turn, provide some support for the NZD in the short term.

As such, the outlook for the NZD/USD pair remains somewhat neutral to bullish, with traders likely to await more confirmation before positioning for a deeper correction. The recent price action indicates that the pair has not yet exhausted its bullish momentum. A sustained breakout above the key 0.5760 level, which had acted as a strong horizontal barrier, favors the bulls and suggests that there is room for further upside, particularly if any pullback remains shallow.

Technical Analysis

From a technical perspective, the pair's recent breakout above the 0.5760 level is a positive sign for the bulls. A pullback to this level could provide an opportunity for dip-buying, potentially leading to a continuation of the uptrend. Traders should watch for any signs of stabilization around this level to confirm that the upward momentum is intact. The upward target for the pair is likely around the 0.5930 region, where further resistance may emerge.

On the daily chart, the NZD/USD pair is forming a classic head and shoulders bottom pattern, which suggests that the pair could be poised for further upside if it successfully stabilizes above the 0.5770 support level. If the pair manages to hold this support after a pullback, it could open the door for a continuation of the bullish trend, with an upward target around 0.5930. Traders should be cautious, however, and wait for confirmation of a solid rebound before entering long positions.

Despite the short-term pressures from the USD's recovery, the technical outlook for NZD/USD remains constructive. A breakout above the 0.5760 resistance level has given the bulls the upper hand for now, but any signs of a significant pullback should be monitored closely.

TRADE RECOMMENDATION

BUY NZDUSD

ENTRY PRICE: 0.5780

STOP LOSS: 0.5720

TAKE PROFIT: 0.5930

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