New Zealand Dollar Rebound To Be Short-Lived, Swiss Franc May Benefit From Flight To Safety | Learn Forex | GoLearnForex.com

New Zealand Dollar Rebound To Be Short-Lived, Swiss Franc May Benefit From Flight To Safety

Written by article default Tuesday, 08 March 2011 18:31

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The New Zealand dollar outperformed against its major counterparts on Tuesday, with the NZD/USD rallying to a high of 0.7418, but the rebound in the exchange rate could be short-lived as market participants expect the Reserve Bank of New Zealand to cut borrowing costs at its rate decision later this week. The kiwi-dollar remains nearly 30 points higher from the open after moving 66% of its average true range, and the pair may continue to consolidate over the next 24-hours of trading as it struggles to hold above the 240-SMA at 0.7404. As market participants speculate the RBNZ to lower the benchmark interest rate by 25bp to 2.75% on Wednesday, there is likely to be a bearish reaction in the NZD/USD, but the statement accompanying the rate decision should set the tone for future price action as investors weigh the prospects for monetary policy. Dovish comments from the RBNZ could spark another selloff in the exchange rate as interest rate expectations deteriorate, but the correction in the kiwi-dollar may gather pace if the central bank surprises the market and keeps the cash rate unchanged at 3.00%.

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The Swiss franc continued to lose ground against its U.S counterpart and the reversal in the USD/CHF may gather pace going into the middle of the week as the exchange rate continues to come off of the record-low. The dollar-franc is 75pips higher on the day after moving 111% of its ATR, but the bearish divergence in the RSI could spark a small correction in the exchange rate as the oscillator comes back from oversold territory. In turn, the USD/CHF may revert back to the 120-SMA (0.9278) going into the Asian trade, and the pair may trend sideways over the remainder of the remainder of the week as the near-term rally fails to produce a test of 0.9400. At the same time, we may see increased demands for the Swiss franc as the European debt crisis comes into focus, and there could be a flight to safety following the EU Summit on March 11 as European policy makers struggle to restore investor confidence.

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