NZDUSD struggles at the 200-DMA and tumbles below 0.5900 on risk aversion amid US elections

• The NZD weakened against the American Dollar on risk aversion.
• The USD got bolstered by the United States midterm elections split between the Republicans and the Democrats.
• NZDUSD was unable to crack the 200-day EMA and tumbled below 0.5900, ahead of the October US inflation report.

The New Zealand Dollar retraces after the NZDUSD hit on Tuesday its weekly high at 0.5999 amid a session of broad American Dollar weakness, as speculators were assessing a possible sweep of the Republican Party in the United States midterm elections, but a close race and a possible split in the US Congress fretted investors. On Wednesday, the story is different, as risk aversion took over, and the safe-haven status of the US Dollar weighs against most G8 currencies, including the NZD. At the time of writing, the NZDUSD is trading at 0.5880, down by more than 1%.

The United States midterm elections results suggest a split US Congress

US equities finished in the red as most Wall Street analysts were speculating that Republicans would sweep both the US House and the Senate, which was perceived as risk appetite positive. However, data confirms that Congress would be split. Regarding the US House, reports said that the Republicans gained 206 seats vs. 177 of the Democrats, while the US Senate is at 48 for each party. Nevada, Arizona, and Georgia are pending to finish the vote count. Still, at the time of typing, two out of those three states are leaning toward the Democrats, suggesting they would have the majority in the Senate.

All that said, the New Zealand Dollar, which is perceived as a high-beta currency, weakened against the greenback as the market mood shifted sour, bolstering flows toward safe-haven assets ahead of the US inflation report. Therefore, the USD benefitted, as shown by the US Dollar Index, which tracks a measure of the American Dollar value against a basket of six currencies, which rose by 0.73% at 110.426.

Traders’ focus shifts to US Consumer Price Index (CPI) for October

Aside from this, the Bureau of Labor Statistics (BLS) will reveal the October Consumer Price Index (CPI), with expectations for headline CPI at 8% YoY, while core CPI, which excludes volatile items like food and energy, is estimated to jump by 6.5% YoY, below the previous month’s reading. If the CPI cools down, it should be expected that the NZD could resume its recovery and reclaim the 0.5900 figure. Otherwise, the NZDUSD would be downward pressured and could extend its losses beneath the 0.5800 mark.

Fed’s Barkin compromised to tame inflation, even though it could slow down the US economy

Aside from this, a light US economic docket left NZDUSD traders adrift to Fed speaking, led by the Richmond Fed President Thomas Barkin. He said that the Federal Reserve’s willingness to fight inflation would lead to an economic downturn, though he added that the United States is not currently in a recession. He added that the country is at the back end of inflation and that it will begin to decline.

NZDUSD Price Analysis: Technical outlook

From a daily chart perspective, the NZDUSD remains in a downtrend. Since the beginning of April 2022, price action has been trading within a descending channel, unable to crack the top of it. On Tuesday, the NZDUSD edged toward the 100-day Exponential Moving Average (EMA) at 0.6029 but was short, reaching a fresh two-month high at 0.5999, exposing the NZD to further selling pressure. That said, the NZDUSD tumbled below the 0.5900 figure, and the path of least resistance is to continue to trend lower.

That said, the NZDUSD key support levels lie at the 50-day EMA at 0.5817, ahead of the 0.5800 figure. Once cleared, the next support would be the mid-line of the eight-month-old descending channel at 0.5770.