- USD dived to 10-week lows on the US election results and pushed NZDUSD to 19-month tops.
- Expectations of a dovish policy outlook by the RBNZ might hold bulls from placing fresh bets.
- The set-up favours bullish traders and supports prospects for a move towards 0.6900 handle.
- Pullbacks might now attract some dip-buying and is likely to remain limited near mid-0.6800s.
The US Dollar turned out to be the worst-performing major currencies last week and fell to 10-week lows on Monday. The Democrat candidate Joe Biden was declared the winner of a nail-biting US presidential election. However, the possibility of a split Congress dampened prospects for large fiscal stimulus packages and fueled speculations that the Fed might be forced to ease further to support the economy amid the continuous rise in COVID-19 infections. This, in turn, continued exerting downward pressure on the greenback.
Meanwhile, Biden's presidency is expected to boost world commerce, which, along with the buoyant mood sent drove investors towards buying trade-exposed currencies. The combination of factors pushed NZDUSD further beyond the 0.6800 mark, to its highest level since March 2019. Despite the supporting factors, bulls seemed reluctant to place fresh bets, rather preferred to wait on the sidelines ahead of the latest monetary policy update by the RBNZ.
The New Zealand central bank is scheduled to announce its policy decision on Wednesday and is widely anticipated to leave interest rates unchanged. Hence, the key focus will be on the policy outlook, wherein the RBNZ is expected to lay the groundwork to introduce negative rates in 2021. This should help investors to determine the next leg of a directional move for the major.
From a technical perspective, the pair last week confirmed a bullish breakout through a short-term ascending trend-channel. A subsequent move beyond the 0.6790-0.6800 supply zone might have already set the stage for an extension of the recent appreciating move. The constructive outlook is further reinforced by the fact that oscillators on the daily chart are holding in the bullish territory and are still far from being in the overbought zone. Hence, a subsequent move back towards reclaiming the 0.6900 handle, en-route March 2019 swing highs, around the 0.6935-40 region, looks a distinct possibility.
On the flip side, any meaningful pullback might now be seen as a buying opportunity near the 0.6760-50 support zone. The mentioned area coincides with the ascending trend-channel resistance breakpoint and should act as a strong near-term base for the major, or a stop-loss level for fresh bullish positions.