In the view of UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia, extra downside in NZD/USD is likely to meet a tough support around 0.5880.

Key Quotes

24-hour view: Yesterday, we expected NZD to consolidate. Our expectation was incorrect as it plunged to a low of 0.5944 before ending the day on a weak note at 0.5948 (-0.84%). Unsurprisingly, the rapid drop is oversold, but with no signs of stabilisation just yet, NZD is likely to weaken further. However, any decline is unlikely to reach 0.5880 today (there is another support at 0.5910). Resistance is at 0.5970, followed by 0.5990. 

Next 1-3 weeks: After NZD soared to a high of 0.6044 last Friday (29 Sep), we highlighted that “the improving upward momentum suggests NZD could test and potentially break above the resistance at 0.6050.” We added, “a breach of 0.5930 would suggest that NZD is not ready to test 0.6050.” NZD then fell sharply and reached a low of 0.5944 in NY. While our ‘strong support’ level has not been breached yet, the buildup in upward momentum has fizzled out. Not only that, but downward momentum is also building. From here, as long as NZD stays below 0.6010 in the next few days, NZD is likely to weaken. That said, any decline is likely to face strong support at 0.5880. This support level is followed closely by another strong support at 0.5860 (the low in Sep).