The NZD/USD exchange rate has dropped from its highest level in nearly five months. On Wednesday, following the release of US inflation data, the NZD/USD rate exceeded 0.6220 for the first time since 15 January 2024.

However, today the rate has fallen approximately 1.3% from Friday’s peak, suggesting that the market's reaction to the US inflation news was overly emotional.

According to Reuters:
→ Fed Chair Jerome Powell indicated a readiness to keep rates steady until clearer economic signals suggest a need for cuts.
→ Traders have reduced the likelihood of a Fed rate cut at the September meeting.

Meanwhile, the Reserve Bank of New Zealand does not plan to cut rates at all in 2024. According to Trading Economics, any rate cuts are unlikely before mid-2025.

Thus, the policies of the two central banks are balanced, and the current drop from nearly a 5-month high may be a return to a more balanced valuation after an emotional surge into overbought territory.

The RSI indicator supports this view.

Further technical analysis of the NZD/USD chart provides more valuable insights:
→ Since mid-April, the market has been in an ascending channel (shown in blue);
→ The June peak appears to be a false breakout of the April-March highs;
→ This week, the price failed to reach the upper boundary of the channel and fell sharply to the lower boundary – a bearish sign.

The lower boundary may provide support after Thursday's decline, but if this only leads to a weak rebound, the channel could become more vulnerable to a bearish breakout.

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