The New Zealand Dollar is coming into growing bearish pressure against the US Dollar, following its rejection from the 0.5805 area on Wednesday. The bearish engulfing candle printed in the daily chart, and the lower high on Thursday, suggest that the bullish cycle from mid-October lows has run out of steam.
On Wednesday, the hawkish comments from the Federal Reserve’s Chairman, Jerome Powell, sent the US Dollar flying across the board. The New Zealand Dollar, however, is failing to regain lost ground despite the positive news from the Trump-Xi meeting, which highlights the negative momentum.
Technical Analysis: Potential Head & Shoulders pattern
From a technical perspective, recent price action reveals a potential bearish Head & Shoulders pattern, visible in the 4-hour chart, which is a common figure to anticipate trade shifts. The Relative Strength Index (RSI) in the mentioned timeframe has crossed below the 50 level, and the Moving Average Convergence Divergence is showing growing downward pressure, with the red bars in the histogram growing higher.
Brars, however, will have to confirm below the confluence of trendline support from the mentioned October 14 low, now at 1.5760, with Thursday’s low, and the headline of the H&S figure, at 0.5750. The H&S’s measured target lies right below the October 17 and 21 lows, at the 0.5710 area.
To the upside, resistances are at Thursday’s high of 0.5800 ahead of the October 6 high, at 0.5850. A confirmation beyond here would cancel the bearish structure of lower highs and lower lows from mid-September highs, and shift the focus to the area of 0.5915 (September 11 low).
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.
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