NZD/USD Forms Head and Shoulders Top Ahead of RBNZ Financial Stability Report

The New Zealand dollar is trading lower againt 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 on November 13th. 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 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 Kiwi gives the Bank “greater flexibility as to the timing and magnitude” of future 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 last quarter. 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 pruchases as soon as their meeting in December. Another factor powering the rally in the greenback was the surprise rate cut from the European Central Bank (ECB) last week, lowering 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 0.8188. The nearby 200 period moving average at 0.8175 underscores this area as a key level for the Kiwi.