NZD/USD Price Forecast: Extends losing streak for fourth trading day

NZD/USD slides further to near 0.5700 as the US Dollar gains ground recovering from the 11-week low.
A green signal to US President Trump’s tax cut plan has supported the US Dollar.
The RBNZ reduced its OCR by 50 bps to 3.75% last week, as expected.

The NZD/USD extends its losing spree for the fourth trading day on Wednesday and slides to near the key level of 0.5700 in European trading session. The Kiwi pair weakens further as the US Dollar (USD) bounces back after revisiting the 11-week low. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, recovers to near 106.50.

The Greenback discovers demand after the United States (US) House of Representatives approved US President Donald Trump’s $4.5 trillion tax cut plan with a narrow majority. Investors expect the Trump’s tax agenda would be inflationary for the economy. Such a scenario would force Federal Reserve (Fed) to maintain a restrictive monetary policy stance.

In the meantime, Fed dovish bets for the June policy meeting have escalated after the release of the weak US flash S&P Global PMI data for February released on Friday.

Meanwhile, the New Zealand Dollar (NZD) underperforms since Friday post the aftermath of the Reserve Bank of New Zealand’s (RBNZ) monetary policy announcement on February 19 in which the central bank reduced its Official Cash Rate (OCR) by 50 basis points (bps) to 3.75%, as expected, but guided a cautious stance on further monetary easing.

NZD/USD rebounds strongly from the support zone plotted around 0.5500 on a weekly timeframe. However, the 20-week Exponential Moving Average (EMA) near 0.5776 continues to remain a hurdle for the pair.

The 14-week Relative Strength Index (RSI) attempts to return inside the 40.00-60.00 range. A fresh bearish momentum would trigger if the RSI fails to do the same.

The Kiwi pair could decline to near round-level supports of 0.5400 and 0.5300 if it breaks below the 13-year low of 0.5470.

On the flip side, a decisive break above the February 21 high of 0.5773 could drive the pair to the December 10 high of 0.5867, followed by the November 29 high of 0.5930.

NZD/USD weekly chart

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.