NZD/USD likely to test May highs

While most major currency pairs have been in a holding pattern following the Fed meeting, the NZD has been a star performer this week particularly against the greenback.

Source: Bloomberg

NZD punched through 0.8700 yesterday and remains fairly resilient in Asia today. A strong GDP report set the scene for the NZD yesterday, coming in well ahead of expectations and reinforced the strong momentum in the economy.

While the data was impressive, domestic consumption seems to be smoothing and perhaps this could be a trigger for the RBNZ to take a breather. On the USD side of the equation, a dovish Fed also helped weaken the greenback and fanned the pair higher.

As the pair edges ever closer to May highs, it’s really difficult to find a good value trade out of the current setup. In May the pair printed a high of 0.8780 before starting a major pullback. I would prefer to trade the pair on a momentum play on a close above May highs. A previous uptrend support line also comes in near the May highs and is also likely to present a challenge.

From there, August 2011 highs at 0.8843 could be a reasonable target provided NZ economic data continues to show some strong signs. The only noteworthy release out of New Zealand next week is trade balance and therefore the USD side of the equation is more likely to dictate how the pair trades.

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