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New Zealand dollar rises as Chinese authorities promise more support for the economy

  • The New Zealand dollar rises thanks to optimism regarding its main trading partner, China.
  • The Kiwi gains traction after the PBOC decides to keep rates unchanged and pump more liquidity into the economy.
  • The NZD/USD pair continues to bounce, resuming last week’s short-term uptrend.

The New Zealand Dollar (NZD) is trading higher against the US Dollar (USD) at the start of the new week, as optimism over the prospects of New Zealand’s main trading partner China supports the NZD, and the USD suffers more losses.

Daily Market Summary: New Zealand Dollar Benefits from Improving China Sentiment

  • The New Zealand dollar rises, benefiting from greater optimism about the prospects of China, its main trading partner.
  • On Monday, Chinese officials reiterated their promise to roll out more support policies for the country’s troubled real estate sector.
  • During the Asian session, the People’s Bank of China (PBOC) held its monetary policy meeting and decided to keep its prime lending rate (prime lending rate) close to the lows of 3.45%. It also injected some 80 billion yuan of liquidity into the economy.
  • The PBOC also set a higher-than-expected daily midpoint for the USD/CNY peg.
  • The dollar, for its part, was weighed down by the expectation that the Federal Reserve (Fed) had completed its interest rate hike.
  • Since higher interest rates tend to increase demand for a currency by attracting foreign capital inflows, this has weighed on the dollar.
  • In fact, markets are pricing in the possibility of the Fed cutting rates by almost 100 basis points through December 2024, which has caused a sharp drop in US Treasury bond yields, which are closely correlated. with the USD. The 10-year US government bond yield fell to two-month lows on Friday and continues to weaken the dollar.
  • The next major release for the New Zealand Dollar is New Zealand’s trade balance for October, which will be released at 21:45 GMT.

New Zealand Dollar Technical Analysis: NZD/USD could be forming a possible bottom

NZD/USD – the number of US dollars a New Zealand Dollar can buy – continues its bounce on Monday, peaking near key October highs at (0.6050 – 0.6055).

New Zealand Dollar vs. US Dollar: Daily Chart

The pair remains in a short-term uptrend, with a long bias; this holds as long as the Nov 14 lows at 0.5863 remain intact.

The area surrounding the October highs has been touched several times this year, making it an important support and resistance level. Due to its importance, volatile performance is likely to occur when it breaks down.

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. This move would initially target the 200-day simple moving average (SMA) around 0.6100.

A 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 represent the left and right shoulders, while H represents the head. If the neckline at the October highs is broken decisively, it will indicate a substantial move higher, with a target at 0.6215.

A decisive breakout would be accompanied by a long green candle or three green candles in a row.

However, medium and long-term trends remain bearish, so the bearish potential remains high.

New Zealand Dollar FAQ

What factors determine the price of the New Zealand Dollar?

The New Zealand Dollar (NZD), also known as Kiwi, is a well-known trading currency among investors. Its value is broadly determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. The evolution of the Chinese economy tends to move the Kiwi because China is New Zealand’s largest trading partner. The bad news for the Chinese economy will likely translate into fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor moving the NZD is dairy product prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.

How do RBNZ decisions affect the New Zealand Dollar?

The Reserve Bank of New Zealand’s (RBNZ) goal is to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also drive up bond yields, making it more attractive for investors to invest in the country and thus boosting the New Zealand dollar. On the contrary, lower interest rates tend to weaken the NZD. The so-called rate differential, or what rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.

How does economic data influence the value of the New Zealand Dollar?

The release of macroeconomic data in New Zealand is key to assessing the state of the economy and can influence the valuation of the New Zealand dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.

How does overall risk sentiment influence the New Zealand Dollar?

The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive overall market risks to be low and are optimistic about growth. This usually translates into a more favorable outlook for commodities and so-called “commodity currencies” such as the Kiwi. Conversely, the NZD tends to weaken in times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.

Source: Fx Street

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