The New Zealand dollar had a pretty tough week last week, as China’s growth concerns, weaker-than-expected mid-tier domestic data, and overall risk aversion highlighted the commodity-related currency’s relative weakness in the FX space.
Meanwhile, the Bank of Canada’s (BOC) willingness to explore deeper interest rate cuts isn’t doing CAD bulls favors. In fact, the oil-related Loonie failed to capitalize on last week’s recovery in crude oil prices.
This is likely why NZD/CAD, which has been making lower highs and lower lows since hitting resistance at .8475, bounced from its .8315 lows to retest the .8400 psychological handle.
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NZD/CAD 1-hour Forex Chart by TradingView
Will NZD/CAD extend its downtrend this week?
Our Event Guide for Canada’s CPI Report suggests that we could see easing Canadian consumer price pressures in August. This is supportive of dovish BOC speculations and would likely weigh on the Loonie.
USD/CAD’s uptrend is a good setup to watch in case of a net negative CAD reaction.
But if the CPI reports reflect elevated price pressures, then CAD could recoup some of its losses.
NZD, which showed early weakness following China’s data dump misses over the weekend, may extend its downtrend against CAD.
We’re on the lookout for bearish candlesticks around the .8400 psychological handle close to the R1 (.8409) Pivot Point line and a descending channel resistance.
A rejection and consistent trading below .8400 opens the pair to a retest of its .8320 previous lows.
In the event that NZD’s Monday upswing gains momentum before Canada’s CPI report, we can also consider a move to the .8425 inflection point before NZD bears take control of NZD/CAD’s price action.
However you choose to trade this setup, make sure you’re using your best risk management plans and are keeping tabs on the rest of the top-tier catalysts so you don’t miss out on entry and exit opportunities!