- The New Zealand Dollar’s rally against the Greenback on Tuesday dissipated after FOMC minutes showed willingness to hike if necessary.
- The Kiwi gains after the US Dollar weakens and the PBOC decides to keep rates unchanged whilst pumping more liquidity into the economy.
- NZD/USD continues to rally. The medium-term outlook could now be bullish.
The New Zealand Dollar (NZD) rallied early on Tuesday, but that strength has dissipated as the US Dollar gained momentum following the release of Federal Open Market Committee (FOMC) Minutes from the meeting held in early November. The FOMC Minutes showed the central bank leaving the door open to further tightening if necessary. The NZD/USD pair rose to an intraday high of 0.6086 during the Asian session, but the FOMC minutes sent the pair down to 0.6046 during the US session. The pair is still up 0.12%.
After Chinese central bank officials pledged to support the Chinese economy on Monday, optimism surrounding the outlook for New Zealand’s chief trading partner has remained strong.
The NZD/USD pair brok above an important technical resistance level earlier in the session that stubbornly held for over three months at 0.6050-0.6055 despite repeated attempts.
Daily digest market movers: New Zealand Dollar rises ahead of Fed minutes
- The New Zealand Dollar rises, benefiting from increased optimism over the outlook for China, its biggest trading neighbor.
- This suggests continued strong demand for Kiwi goods, which translates into increased demand for the currency, strengthening it.
- On Monday, People’s Bank of China (PBOC) officials reiterated their vow to roll out more policy support for the country’s beleaguered real estate sector.
- The PBOC also decided to leave its benchmark Loan Prime Rate (LPR) near record lows of 3.45%, further supporting the flow of easy credit.
- The US Dollar, on the other hand, continues to be weighed down by the expectation that the Federal Reserve (Fed) has concluded raising interest rates for this cycle and now sits at a pivotal turning point.
- Since higher interest rates tend to increase demand for a currency because they attract foreign capital inflows, this has weighed on USD.
- Markets are now pricing in the possibility of nearly 100 bps of Fed rate cuts by December 2024, which has led to a sharp decline in US Treasury bond yields, which are closely correlated with the USD. The yield on the benchmark 10-year US government bond fell to a two-month low on Friday and continues to undermine the US Dollar.
- The next major release for NZD/USD is the minutes from the November Federal Reserve meeting.
- This will provide analysts with more information regarding the Fed’s interest-rate setters and whether they concur with the market about the peak rate having been reached.
New Zealand Dollar technical analysis: NZD/USD breaks through key resistance level
NZD/USD – the number of US Dollars one New Zealand Dollar can buy – breaks above the key October highs at (0.6050 – 0.6055).
New Zealand Dollar vs US Dollar: Daily Chart
The pair remains in a short-term bullish trend, biasing longs. Since the break above the October highs, it may also now be deemed to be in a medium-term bullish trend too.
A decisive break above 0.6055 would change the outlook to bullish in the medium term, indicating the possibility of the birth of a new uptrend. Such a move would then initially target the 200-day Simple Moving Average (SMA) at around 0.6100.
If Tuesday’s daily candlestick closes green and on a bullish note, it will suggest more upside is probable.
A possible bullish inverse head and shoulders (H&S) pattern may have formed at the lows. The pattern is identified by the labels applied to the chart above. L and R stand for the left and right shoulders, whilst H stands for the head. The target for the inverse H&S is at 0.6215.
A decisive break would be one accompanied by a long green candle or three green candles in a row.
The long-term trend is still bearish, suggesting downside risks remain.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/new-zealand-dollar-rises-ahead-of-us-fed-minutes-202311211350