NZD/USD Forms Head And Shoulders Top Ahead Of RBNZ Report

The New Zealand dollar is trading lower against the US dollar for a fourth consecutive day in Tuesday's London trading session.

The Reserve Bank of New Zealand (RBNZ) bi-annual financial stability report is due for release this week. The financial stability report covers the soundness and efficiency of the New Zealand financial system as well as outlining the key policy measures that the central bank is undertaking.

The market will be attuned to whether RBNZ Governor Graeme Wheeler will try to 'talk down' the Kiwi dollar. Governor Wheeler stated at the last RBNZ meeting that the strong New Zealand dollar gives the central bank “greater flexibility as to the timing and magnitude” of future interest rate increases. The RBNZ benchmark interest rate currently stands at 2.5%.

The US dollar has seen broad strength following the positive economic data of last week. Last Thursday's GDP report showed that the US economy expanded faster than expected in Q3. On Friday, the non farm payrolls report from the Bureau of Labor Statistics far surpassed expectations.

The robust economic data out of the US has fueled speculation that the Federal Reserve may begin tapering their $85 billion a month bond purchases as soon as their meeting in December.

San Francisco Fed president John Williams said the jobs report was encouraging and Atlanta Fed President Dennis Lockhart said the Fed can't rule out QE tapering next month. Speaking to reporters in Mississippi he stated “the question of changing the mix of accommodative tools ought to be on the table at every meeting for the foreseeable future.”

Another factor powering the rally in the greenback was the surprise rate cut from the European Central Bank last week. The ECB lowered their benchmark rate to a record low of 0.25 percent amid concerns over below target inflation levels.

NZD/USD Daily Chart

The daily chart of NZD/USD shows a well defined head and shoulders top pattern, with price nearing the neckline at 0.8190. The nearby 200 period moving average at 0.8175 underscores this area as a key inflection zone.
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