The New Zealand Dollar (NZD) benefits from an overall positive, risk-on mood in the markets on Tuesday. The US Dollar, meanwhile, remains pressured ahead of the release of the Federal Reserve’s last meeting minutes.
After Chinese central bank officials pledged to support the Chinese economy, optimism surrounding the outlook for New Zealand’s chief trading partner has remained strong.
The NZD/USD pair has broken above an important technical resistance level that has stubbornly held for over 3-months at 0.6050-0.6055 despite repeated attempts. If it can hold onto Tuesday’s gains, the break could be classed as ‘decisive’, shifting the intermediate outlook to bullish.
NZD/USD – the number of US Dollars one New Zealand Dollar can buy – breaks above 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. Since the break above the October highs, it may also now be deemed to be in a medium-term bullish trend too.
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.
If Tuesday’s daily candlestick closes green and on a bullish note, it will suggest more upside is probable.
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.
A decisive break would be one accompanied by a long green candle or three green candles in a row.
The long-term trend is still bearish, suggesting downside risks remain.
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.