The New Zealand Dollar posts marginal gains against the USD on Thursday, trimming losses after a nearly 1% decline on Wednesday to seven-month lows at 0.5585. The hawkish minutes from October’s Federal Reserve monetary policy meeting boosted the US Dollar across the board, and the Kiwi is attempting to regain lost ground on Thursday as traders trim US Dollar longs, ahead of September’s US Nonfarm Payrolls report..
The minutes of the latest Fed meeting revealed a strong opposition to cutting rates in October, which cast further doubt about another quarter-point cut in December. In New Zealand, on the contrary, the market is fully pricing an RBNZ rate cut next week, which has created a USD-supportive monetary policy divergence.
Technical Analysis: The Daily chart shows an ending wedge pattern
The technical picture remains strongly bearish with no signs of a trend reversal as of yet. The daily chart, however, shows an ending wedge formation, which suggests that the negative trend might be losing steam after a nearly 9% downtrend since July. Beyond that, there is a bullish divergence on the Relative Strength Index that points in the same direction.
Bullish attempts, however, keep finding sellers so far. The pair has returned to levels above 0.5600, but the rebound remains fragile. Trendline resistance, at the 0.5660 area, and the November 14 and 17 highs, around 0.5690 need to be breached to ease downward pressure and shift the focus toward the October 28 highs, near 0.5800.
To the downside, immediate support is at Wednesday’s low of 0.5885 and the trendline support, at 0.5880. Further down, the 261.8% Fibonacci extension of the early July sell-off, a common point of exhaustion, lies at 0.5510.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.