The New Zealand Dollar (NZD) recovers against the US Dollar (USD) on Thursday, despite a worsening macro picture after bouncing off technical support at the important 50-day Simple Moving Average (SMA). The 50-day SMA is used as a key guide to investing by institutional investors, such as pension fund managers, and retail traders alike.
NZD/USD – the number of US Dollars one New Zealand Dollar can buy – bounces off the key 50-day SMA and rises 0.35% at the time of writing on Thursday, to trade at 0.5929.
At the same level as the 50-day sits the 0.382 Fibonacci retracement of the rally from off the late October year-to-date lows, further reinforcing its role as springboard.
New Zealand Dollar vs US Dollar: Daily Chart
The trend is bullish in the short term and a decisive break above the November 3 high at 0.6001 would reconfirm this bullish bias, with a likely target thereafter at the 0.6055 October high.
However, the medium and long-term trends are still bearish, suggesting the potential for more downside is strong.
New Zealand Dollar vs US Dollar: Daily Chart
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 in the medium term and suggest the possibility of the birth of a new uptrend.
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.
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