New Zealand Dollar makes higher highs ahead of RBNZ decision

• The New Zealand Dollar continues rising on the eve of the RBNZ’s November policy decision.
• Although recent data appears to reflect a slowdown, the RBNZ could still tilt hawkish, say analysts.
• NZD/USD forms a worrying-looking ending wedge pattern on the 4-hour chart, suggesting the risk of a pullback.

The New Zealand Dollar (NZD) trades higher in most pairs on Tuesday ahead of the Reserve Bank of New Zealand (RBNZ) meeting. Although few expect the RBNZ to lift interest rates at the meeting on Wednesday, given recent subdued data, some analysts still see a risk of hawkish hold. Forecasts and commentary from Reserve Bank Governor Adrian Orr are likely to come under intense scrutiny for cues.  

Daily digest market movers: New Zealand Dollar faces risk from RBNZ decision

• The New Zealand Dollar rises on the eve of the RBNZ meeting policy announcement on Wednesday at 01:00 GMT. 
• There is a low probability the bank will change interest rates, according to Bloomberg’s World Interest Rate Probabilities (WIRP), which suggest 5.0% odds of a hike in the bank’s prime lending rate, the Official Cash Rate (OCR), which currently stands at 5.50%. 
• New Zealand data has come out below expectations recently, suggesting that if anything interest rates are at risk of being cut. 
• “..official data from Statistics New Zealand (Stats NZ) showed that the Consumer Price Index (CPI) in the 12 months to September rose 5.6%, lower than expectations of 5.9% and the prior quarter’s reading of 6.0%. On a quarterly basis, New Zealand’s inflation increased to 1.8% but fell short of expectations of 2.0%.” Says Dhwani Mehta, senior analyst at FXStreet.
• New Zealand's Unemployment Rate climbed to 3.9% in the September quarter, compared with 3.6% last quarter, however, with the new right-wing coalition government set to scrap the RBNZ’s dual mandate, which includes maintaining full employment, and replacing it with just ‘maintaining price stability’, the rising jobless rate is unlikely to be a concern for the RBNZ. 
• Some analysts think Orr’s commentary could sway hawkish, fueling further upside for the Kiwi. 
• "..with so much easing now priced in, the risks could be skewed slightly to the upside for the Kiwi on a non-dovish outcome," say economists at ANZ Bank in a note.
• Asian markets closed with the Hang Seng almost 1.0% lower on Tuesday, reflecting a negative outlook for China, New Zealand’s main trading partner. 
• Chinese Industrial firms showed lower-than-expected profits in October with only a 2.7% year-on-year rise in profit growth. This marked a return back to single digits, following an 11.9% increase in September and a 17.2% gain in August, according to Reuters.
• The data suggests the Chinese authorities will have to continue providing stimulus to prompt growth, adds the report.
• The Chinese property market remains a concern. On Tuesday there was more bad news regarding troubled property developer Evergrande, which was sued by one of its own subsidiaries, Jinbi Property Management Company, for 2 billion yuan ($279.60 million) in deposit certificate pledge guarantees, according to a report by Reuters. 
• Chinese asset manager Zhongzhi announced liabilities totalling between $58 and $64 billion recently. 
• Foreign Direct Investment, a gauge of foreign investor confidence in China fell into negative territory for the first time this century in Q3 of 2023, a sign that foreign companies previously heavily reliant on Chinese suppliers might be diversifying as part of a “de-risking” strategy, according to Reuters.  

New Zealand Dollar technical analysis: NZD/USD continues higher, worrying wedge on 4-hour chart

NZD/USD – the number of US Dollars that can be bought with one New Zealand Dollar – pushes higher ahead of the highly anticipated RBNZ event. 

The NZD/USD now makes a foot hold clearly above the key 200-day Simple Moving Average (SMA), at an over 3-month high, on Tuesday. 

New Zealand Dollar vs US Dollar: Daily Chart

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. 

A possible bullish inverse head and shoulders (H&S) pattern may be unfolding. The inverse H&S is identified by the labels applied to the daily chart. 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, which has still not been met yet, suggesting more upside is still on the horizon. The pair has already breached the neckline at the October highs, confirming activation of the pattern’s target.

Another way of looking at 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.  

New Zealand Dollar vs US Dollar: 4-hour Chart

Despite evidence of bullish patterns, a bearish ending wedge price pattern has also formed. This can be seen most clearly on the 4-hour chart above. The pattern raises concerns for bulls in the short-term context and could be a sign of a pullback on the horizon. A decisive break below the wedge’s lower boundary line at about 0.6080-75 would lead to a likely sell-off back down to support at 0.6000, the conservative price target for the wedge. 

The MACD on the 4-hour chart is undergoing bearish divergence with price, as can be seen by the progressively higher highs in price as it forms the wedge not being matched by MACD, which is producing lower highs instead. This further suggests underlying weakness in the short-term uptrend. 

The long-term trend is still bearish, suggesting a risk of a recapitulation remains.