The New Zealand dollar made marginal gains against the US dollar on Thursday, paring losses after a nearly 1% decline on Wednesday to a seven-month low of 0.5585. The tight minutes from the Federal Reserve’s October monetary policy meeting strengthened the US dollar across the board, and the kiwi is trying to regain lost ground on Thursday as traders trim long US dollar positions, ahead of the US non-farm payrolls report for September.
Minutes from the Fed’s latest meeting revealed strong opposition to a rate cut in October, casting further doubt on another quarter-point cut in December. In New Zealand, on the contrary, the market is pricing in the Reserve Bank of New Zealand’s interest rate cut in full next week, resulting in a divergence in supportive monetary policy for the US dollar.
Technical Analysis: The daily chart shows a finished wedge pattern
The technical picture remains strongly bearish with no signs of a trend reversal yet. However, the daily chart shows an expiring wedge formation, indicating that the downside trend may be losing steam after a roughly 9% downtrend since July. Furthermore, there is bullish divergence on the RSI pointing in the same direction.
However, bullish attempts are still continuing to find sellers so far. The pair has returned to levels above 0.5600, but the rebound remains fragile. Trendline resistance at 0.5660, and the high of November 14 and 17, around 0.5690 should be breached to ease bearish pressure and shift focus towards the October 28 highs, near 0.5800.
On the downside, immediate support lies at Wednesday’s low at 0.5885 and trend line support at 0.5880. Further down, the 261.8% Fib extension of the early July selloff, a common exhaustion point, lies at 0.5510.
Frequently asked questions about the New Zealand dollar
The New Zealand Dollar (NZD), also known as the Kiwi, is a popular currency among investors. Its value is widely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some unique characteristics that could make the New Zealand dollar move as well. The performance of the Chinese economy tends to move the New Zealand dollar because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely mean New Zealand’s exports to the country will decline, affecting the economy and therefore its currency. Another factor that affects the New Zealand dollar is dairy prices as the dairy industry is New Zealand’s main export. Higher dairy prices boost export income, which contributes positively to the economy and therefore the New Zealand dollar.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain inflation between 1% and 3% over the medium term, with a focus on keeping it near the 2% midpoint. To this end, the Bank sets an appropriate level of interest rates. When inflation is very high, the Reserve Bank of New Zealand will increase interest rates to cool the economy, but this move will also cause bond yields to rise, making it more attractive for investors to invest in the country and thus strengthening the New Zealand dollar. Conversely, low interest rates tend to weaken the New Zealand dollar. The so-called spread, or how New Zealand’s interest rates compare or are expected to compare to those set by the US Federal Reserve, can also play a major role in moving the NZD/USD pair.
New Zealand’s macroeconomic data releases are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment, and high confidence, is good for the New Zealand dollar. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength is accompanied by higher inflation. Conversely, if economic data is weak, the value of the New Zealand dollar is likely to decline.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk, or when investors view broader market risk as low and are optimistic about growth. This tends to lead to a more positive outlook for commodities and so-called “commodity currencies” such as the New Zealand. Conversely, the New Zealand dollar tends to weaken in times of market turmoil or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.
