There is a chance for New Zealand Dollar (NZD) to test 0.5800 before the risk of a recovery increases. In the longer run, sharp drop seems excessive; for a continued decline, NZD must first break and hold below 0.5800, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

Decline is likely if NZD sets foot below 0.5800

24-HOUR VIEW: "NZD plunged to a low of 0.5816 two days ago. Yesterday, when NZD was at 0.5825, we highlighted that 'although there is scope for NZD to weaken further, deeply oversold conditions suggest the major support at 0.5795 is unlikely to come under threat.' We noted that 'there is a minor support at 0.5810.' However, NZD weakened less than expected to 0.5812 before settling at 0.5819 (-0.07%). While conditions remain oversold, there is a chance for NZD to test 0.5800 before the risk of recovery increases. Given the oversold conditions, a sustained drop below 0.5800 appears unlikely. On the upside, resistance levels are at 0.5835 and 0.5855."

1-3 WEEKS VIEW: "We highlighted two days ago (20 Aug, spot at 0.5895) that 'downward momentum is starting to build, and the risk of NZD breaking below 0.5880 is increasing.' NZD subsequently plunged to a low of 0.5816. Yesterday (21 Aug, spot at 0.5825), we indicated the following: 'While the sharp drop seems excessive, there is no sign of stabilisation. That said, for a continued decline, NZD must first break and hold below 0.5800. The likelihood of NZD breaking clearly below 0.5800 will remain intact as long as 0.5895 (‘strong resistance’ level) is not breached. Looking ahead, the next level to watch below 0.5800 is another significant support at 0.5765.' We continue to hold the same view, but we are revising the ‘strong resistance’ level lower to 0.5870."