- The New Zealand Dollar rises on increased optimism regarding its largest trading partner, China.
- The Kiwi gains traction after the PBOC decides to keep rates unchanged and pumps more liquidity into the economy.
- NZD/USD continues to rebound, resuming the short-term uptrend from last week.
The New Zealand Dollar (NZD) is trading higher against the US Dollar (USD) on Monday. Optimism surrounding the outlook for China, New Zealand’s chief trading partner, supports the NZD – and the USD suffers more losses. Chinese government officials said on Monday that they had planned to backstop the faltering real estate sector.
The NZD/USD pair has risen 44 pips in Monday’s session at 20:00 GMT, changing hands at 0.6032 – up 0.74%.
Daily digest market movers: New Zealand Dollar buoyed by improved sentiment around China
- The New Zealand Dollar rises, benefiting from increased optimism over the outlook for China, its biggest trading partner.
- On Monday, Chinese officials reiterated their vow to roll out more policy support for the country’s beleaguered real estate sector.
- During the Asian session, The People’s Bank of China (PBOC) held its policy meeting and decided to leave its benchmark Loan Prime Rate (LPR) near record lows of 3.45%. It also injected about 80 billion Yuan of liquidity into the economy.
- The PBOC also set a stronger-than-expected daily midpoint for the USD/CNY fix.
- The US Dollar, on the other hand, was weighed down by the expectation that the Federal Reserve (Fed) has concluded raising interest rates.
- Since higher interest rates tend to increase demand for a currency because they attract foreign capital inflows, this has weighed on USD.
- In fact, markets are now pricing in the possibility of nearly 100 bps of Fed rate cuts by December 2024, which has led to a sharp decline in US Treasury bond yields, which are closely correlated with the USD. The yield on the benchmark 10-year US government bond fell to a two-month low on Friday and continues to undermine the US Dollar.
- The next major release for the New Zealand Dollar is the New Zealand Trade Balance for October, out at 21:45 GMT.
New Zealand Dollar technical analysis: NZD/USD may be forming potential bottoming formation
NZD/USD – the number of US Dollars one New Zealand Dollar can buy – continues its rebound on Monday, peaking close to the key October highs at (0.6050 – 0.6055).
New Zealand Dollar vs US Dollar: Daily Chart
The pair remains in a short-term bullish trend, biasing longs; this holds true as long as the November 14 lows at 0.5863 stay intact.
The zone around the October highs has been touched multiple times this year, making it an important support and resistance level. As a result of its heightened significance, it is likely to yield a volatile push higher when it is eventually broken.
A decisive break above 0.6055 would change the outlook to bullish in the medium term, indicating the possibility of the birth of a new uptrend. Such a move would then initially target the 200-day Simple Moving Average (SMA) at around 0.6100.
A possible bullish inverse head and shoulders 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. If the neckline at the October highs is decisively breached, it will indicate a substantial move to the upside, to a target at 0.6215.
A decisive break would be one accompanied by a long green candle or three green candles in a row.
As things stand, the medium and long-term trends are both still bearish, however, suggesting the potential for more downside remains strong.
New Zealand Dollar FAQs
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.