The New Zealand Dollar (NZD) takes another stride higher on Friday as the positive market mood continues and a new government takes its seat in Wellington, bringing weeks of coalition talks to a conclusion.
Market sentiment is finding a boost from falling Oil prices as OPEC+ countries argue over who should shoulder expected supply cuts. Meanwhile, in the US, according to inventory figures, Oil stocks are building, putting further downward pressure on prices. This comes as good news to cash-strapped motorists and businesses facing rising input costs. Global PMI data released during the week was overall positive, further elevating the mood.
As a commodity currency, the Kiwi is sensitive to changing perceptions of global growth and generally reflects investor sentiment.
NZD/USD – the number of US Dollars one New Zealand Dollar can buy – pushes back up to within a hair’s breadth of the 200-day Simple Moving Average (SMA) on Friday.
New Zealand Dollar vs US Dollar: Daily Chart
The pair is in a short and medium-term bullish trend, which continues to bias longs.
The 200-day Simple Moving Average at 0.6100 (just above the current market level at 0.6084) is likely to provide a major resistance level to further upside, so price will probably stall there at first contact.
The MACD momentum indicator is rising in line with price suggesting the uptrend is healthy.
A possible bullish inverse head-and shoulders (H&S) pattern may have formed at the lows. The pattern 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. This 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.
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