Outsized drop appears to be overdone, but New Zealand Dollar (NZD) could test 0.5620. The next support at 0.5600 is unlikely to come under threat. In the longer run, downward pressure has increased; NZD could weaken to 0.5600 next, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Outsized drop appears to be overdone

24-HOUR VIEW: "NZD dropped to a low of 0.5694 two days ago. Yesterday, we pointed out that 'the downward bias remains intact, but based on the current momentum, NZD is unlikely to threaten the major support at 0.5670 today'. Our view of a lower NZD was correct, but we did not anticipate NZD to plunge to a low of 0.5635. The outsized drop appears to be overdone, but NZD could test 0.5620 before stabilisation can be expected. The next support at 0.5600 is unlikely to come under threat. On the upside, resistance levels are at 0.5655 and 0.5675."

1-3 WEEKS VIEW: "Last Friday (31 Oct, spot at 0.5740), we highlighted that 'there has been a slight increase in downward momentum. We expected NZD to 'edge lower, potentially testing 0.5700'. After NZD fell below 0.5700, we indicated yesterday (04 Nov, spot at 0.5705) that NZD 'remains under pressure and could test 0.5670 next'. We did not expect the sudden downward acceleration as NZD plummeted to a low of 0.5635 in the late NY session. Downward pressure has increased, and NZD could weaken to 0.5600 next. Overall, only a breach of 0.5705 (‘strong resistance’ level was at 0.5750 yesterday) would indicate that the mild downward pressure has eased."