Usman Salis
The New Zealand Dollar (NZD) jumped 1.06% against the US Dollar (USD) on Wednesday, reaching 0.5731 and potentially signaling the start of a recovery phase that could target the 0.5775 level, according to UOB Group analysts.
Kiwi (NZD) Momentum Builds Despite Overbought Conditions
The NZD/USD pair showed remarkable strength yesterday, surging well beyond the expected trading range of 0.5625/0.5670 to reach 0.5731. While momentum indicators suggest the New Zealand Dollar could rise further, UOB Group's FX analysts Quek Ser Leang and Peter Chia note that overbought conditions will likely prevent the major resistance at 0.5775 from being tested in the immediate term.
Another resistance level at 0.5750 could also pose a challenge for the Kiwi's upward trajectory. To maintain the current momentum, the analysts stress that NZD must hold above the 0.5675 level, with a minor support positioned at 0.5700.
NZD/USD Short-Term Outlook Shifts from Negative to Recovery
The UOB Group had maintained a negative outlook on the New Zealand Dollar since late last week. However, yesterday's price action has dramatically altered their perspective. On March 5, when NZD/USD was trading at 0.5650, the analysts had already noted that "slowing momentum indicates that the chance of NZD reaching 0.5565 is slim."
They suggested that a breach of the 0.5670 level would indicate that NZD had entered a range trading phase. Instead, the currency pair not only broke above this threshold but surged significantly higher, closing the day at 0.5726.
Kiwi (NZD) Recovery Could Target 0.5775 if Support Holds
The sharp increase in momentum now suggests that current price movements are likely part of a more substantial recovery phase rather than mere range trading. According to the UOB analysts, this recovery could potentially reach the 0.5775 level if the current trajectory continues.
For the recovery to remain intact, the NZD must maintain its position above the "strong support" level, which is now placed at 0.5640. Any breach below this threshold would potentially invalidate the recovery scenario and could lead to a reassessment of the pair's direction.
The significant 1.06% daily gain represents one of the strongest single-day performances for the Kiwi in recent weeks, reflecting growing confidence in the New Zealand economy amid changing global monetary policy expectations.
Technical Indicators Support NZD/USD's Upward Potential
The breakthrough above the 0.5670 resistance level is particularly significant as it represents a key technical barrier that had previously contained the New Zealand Dollar's upside attempts. The decisive move above this level, coupled with the strong closing price of 0.5726, provides technical validation for the newfound bullish sentiment.
While the pair may face short-term resistance due to overbought conditions, the underlying momentum suggests that buyers remain in control of the NZD/USD pair. Traders will be closely monitoring upcoming economic data from both New Zealand and the United States to gauge whether this recovery phase has staying power.
As global risk sentiment continues to fluctuate, the NZD's performance against the US Dollar will likely remain sensitive to broader market themes, including Federal Reserve policy expectations and developments in the Asia-Pacific economic outlook.
Usman Salis
