NZD/USD Nears Completion of AB=CD Pattern

The NZD/USD is experiencing significant selling pressure in response to the unexpected dovish shift by the Reserve Bank of New Zealand (RBNZ). Meanwhile, the USD remains strong, nearing a two-month high, which further contributes to the sharp decline throughout the day. The current fundamental landscape favors bearish traders as market focus shifts to the release of the FOMC minutes.

The NZD/USD pair continues its downward trajectory after a significant drop from the 0.6300 level in the previous day. This selling pressure intensified following the RBNZ's policy announcement on Wednesday. As a result, spot prices have reached a nearly one-month low, around the 0.6130 region during the early part of the European session.

The New Zealand dollar experienced a widespread decline as the RBNZ surprised the markets by signaling the end of its most aggressive hiking cycle since 1999. It's worth noting that the central bank had raised its official cash rate (OCR) by 25 basis points earlier in the week, bringing it to 5.5%, the highest level since the 2008 financial crisis. In the accompanying monetary policy statement, the RBNZ forecasted that the official cash rate would peak at its current level. This, coupled with the strength of the US dollar, has prompted aggressive selling in the NZD/USD pair.

The USD Index (DXY), which tracks the performance of the US dollar against a basket of currencies, remains steady near a two-month high reached on Tuesday. This is due to expectations that the Federal Reserve (Fed) will maintain higher interest rates for a longer period. In fact, the market is currently pricing in the possibility of another 25 basis points rate hike in June, a sentiment reinforced by recent hawkish comments from several Fed officials. Additionally, concerns about global economic growth slowing down further benefit the safe-haven appeal of the US dollar and weigh on the risk-sensitive New Zealand dollar.

On the other hand, USD bulls seem hesitant and are awaiting the release of the FOMC meeting minutes, scheduled for later during the US session. These minutes will be closely analyzed for insights into the Fed's rate-hike trajectory, which will impact the USD in the near term and provide fresh direction for the NZD/USD pair. However, the unexpected dovish shift by the RBNZ suggests that the path of least resistance for spot prices is downward. As a result, any attempted recovery in the pair might be seen as an opportunity to sell and may quickly fizzle out.

From a technical perspective, the NZD/USD pair is nearing completion of a potential AB=CD pattern, and we anticipate a resumption of price movement with a bullish impulse. However, if the price continues to decline, an alternative scenario may come into play.