New Zealand Dollar weakens vs. USD after RBNZ report

• The New Zealand Dollar loses ground against the US Dollar after the RBNZ publishes its latest inflation expectations.
• The central bank report suggests prices are likely to come down in the future, capping interest rates. 
• NZD/USD remains in a long-term downtrend with commentary from Fed Chair Powell and other governors as potential near-term influences. 

The New Zealand Dollar (NZD) edges lower against the US Dollar on Wednesday as the market mood sours on the back of a vaguely downbeat outlook for the global economy. Since New Zealand is a major exporter of commodities, a slowdown in global growth would not help its currency. 

Nor has an inflation report released overnight by the Reserve Bank of New Zealand (RBNZ) helped the Kiwi after it showed a widespread perception that a fall in prices lies ahead, possibly as a result of a slowdown in the economy and falling demand for goods and services. 

Daily digest market movers: New Zealand Dollar weakens on lower price expectations

• The New Zealand Dollar trades lower versus the US Dollar as a result of a generally risk-off tone to markets on Wednesday.
• The Kiwi further weakened against the US Dollar after the RBNZ released its Q3 inflation expectations report. Respondents expected inflation to fall to a lower level in a year’s time than in the previous report. A year out, they saw inflation of 3.60%, which is lower than the 4.17% in the Q2 report.
• Actual inflation in New Zealand, as reported by Stats NZ, showed inflation drop to 5.6% in Q3 versus the 6.0% of the previous quarter. 
• The lower inflation expectations imply the RBNZ is less likely to raise interest rates, of which the principal Cash Rate currently stands at 5.50%. Higher interest rates tend to strengthen a currency by increasing capital inflows from foreign investors searching for higher returns. This explains why the report may have had a negative impact on NZD/USD. 
• The RBNZ report also showed inflation expectations two years out, falling to 2.76% from 2.83% previously. 
• The current widespread view is that the US Federal Reserve (Fed) is also now unlikely to raise interest rates. With the Fed Funds Rate currently at 5.25-5.50%, there is little incentive for traders to borrow in either NZD or USD and invest in the other, an operation known as the ‘carry trade’.
• The next key event on the calendar for the USD is Federal Reserve Chair Jerome Powell’s speech at 14:15 GMT and commentary from several other Fed governors later this afternoon. 

New Zealand Dollar technical analysis: NZD/USD slips lower on charts

NZD/USD – the number of US Dollars one New Zealand Dollar can buy – slipped lower for the third day in a row on Wednesday to trade at 0.5921 at the time of publishing. The pair is pulling back after peaking at 0.6002 on November 6.  

New Zealand Dollar vs US Dollar: 4-hour Chart

The pair has found support at the 50-day Simple Moving Average (SMA) (see chart below). It remains in a short-term uptrend, favoring a recovery. 

A decisive break above the November 3 high would reconfirm the short-term bullish bias, with a likely target thereafter at the 0.6055 high of October.  

New Zealand Dollar vs US Dollar: Daily Chart

The trend remains bearish, however, on both the daily chart and weekly charts suggesting the potential for more downside is strong. 

In line with the dominant longer-term bear trends seen on higher time frames, a break below 0.5884 would signal a continuation of the broader downtrend to a target at the 0.5773 October low. 

Bulls would have to push above the 0.6055 October high to change the outlook on the intermediate chart, to one that was bullish and suggested the possibility of the birth of a new uptrend.