The New Zealand Dollar (NZD) trades lower in most pairs at the start of the new week after investor sentiment sours during the Asian session and investors see a risk of a slightly hawkish tone coming from the Reserve Bank of New Zealand (RBNZ) at their meeting on Thursday.
The Hang Seng index ends Monday down 0.20% after disappointing economic data from China, whilst Japan’s Nikkei falls over half a percent after the Bank of Japan (BoJ) gets more vociferous about the threat of inflation – thereby raising the risk of higher growth-stunting interest rates, and a weaker Yen.
Given New Zealand’s close trade ties with Asia, a negative outlook for the region raises the specter of reduced demand for New Zealand exports and by association its currency.
NZD/USD – the number of US Dollars that can be bought with one New Zealand Dollar – pushes higher amid continued US Dollar weakness, despite the NZD falling in most other pairs.
The NZD/USD meets the key 200-day Simple Moving Average (SMA) and pokes above the 0.6100 level – an over 3-month high, on Monday.
New Zealand Dollar vs US Dollar: Daily Chart
Despite meeting tough resistance at the 200-day SMA and pulling back, the pair is in a short and medium-term bullish trend, which continues to bias longs over shorts.
The MACD momentum indicator is rising in line with price suggesting the medium-term uptrend is healthy.
If Monday ends the day as a spinning top Japanese candlestick pattern, as looks possible, it might suggest a temporary pullback is about to emerge, however. This is reinforced by the proximity of the 200-day SMA serving as an antagonist to further upside. Given the trading session has not ended yet, however, it's still too early to say.
The Kiwi has also formed a possible bullish inverse head and shoulders (H&S) pattern at the lows. The inverse H&S 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. The pair has already breached the neckline at the October highs, confirming activation of the pattern’s target.
Another way of looking at the lines on the chart is that the pattern is in fact a ‘cup and handle’ pattern, with the ‘head’ of the inverse H&S actually a ‘cup’ and the right shoulder a ‘handle’. Regardless of which pattern is forming, the target would be similar to that of the inverse H&S.
The identification of possible reversal patterns adds more weight to the bullish argument.
The long-term trend is still bearish, however, suggesting a risk of a recapitulation remains.
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.
© 2000-2024. All rights reserved.
This site is managed by Teletrade D.J. LLC 2351 LLC 2022 (Euro House, Richmond Hill Road, Kingstown, VC0100, St. Vincent and the Grenadines).
The information on this website is for informational purposes only and does not constitute any investment advice.
The company does not serve or provide services to customers who are residents of the US, Canada, Iran, The Democratic People's Republic of Korea, Yemen and FATF blacklisted countries.
Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.
Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.
Please contact our PR department if you have any questions or need assistance at pr@teletrade.global.