- The New Zealand dollar recovers on Tuesday after falling for more than 10 consecutive days.
- Kiwi rebounds after US CPI data shows unexpected slowdown in October, weighing on Dollar and lifting sentiment.
- NZD/USD reverses its short-term bearish trajectory and aims for November highs.
He New Zealand dollar (NZD) is trading higher against most currencies, after the release of softer-than-expected US inflation data encouraged Wall Street with the prospect of lower borrowing costs, raising risk appetite and supporting commodity currencies such as the Kiwi.
In the case of NZD/USD, the short-term technical situation reverses dramatically after temporarily flirting with deeper losses. An earlier break below key support at 0.5874 had suggested a possible continuation lower, but the pair reversed at a key Fibonacci level and is now trading back above 0.5900 at the start of the US session.
Daily summary of market movements: US CPI boosts Kiwi
- The New Zealand dollar is trading higher following the release of US Consumer Price Index (CPI) data, which shows a slowdown in inflation in October and leads to an improvement in risk appetite.
- As a commodity currency, the NZD tends to perform well when market sentiment is risk-friendly.
- US Consumer Price Index (CPI) data showed no change in headline inflation in October (0.0%), when economists had forecast a 0.1% month-on-month rise. In year-on-year terms, an increase of 3.2% was recorded, when 3.3% was expected.
- Regarding the core CPI, the data showed an increase of 0.2% month-on-month, compared to the 0.3% expected, and 4.0% year-on-year, compared to the 4.1% expected.
- The data suggests even less likelihood that the Federal Reserve (Fed) will raise interest rates at its December meeting or in early 2024. The odds were already low, around 15%, but have fallen further following the release.
- The US dollar has fallen following the data as the prospect of no further interest rate hikes makes the US a less attractive place for global investors to park their capital, reducing demand for Dollars.
- Chinese Industrial Production and Retail Sales data due on Wednesday at 02:00 GMT could also weigh on the Kiwi as China is its largest trading neighbour.
- Recent uninspiring Chinese inflation data has dampened global growth prospects, weighing on the New Zealand dollar last week.
- An RBNZ inflation report showed that both one-year and two-year inflation expectations for New Zealand fell in the third quarter compared to the previous quarter.
- Lower inflation expectations mean the RBNZ is less likely to raise interest rates.
- Tuesday’s lower-than-estimate CPI data will have overshadowed both the higher University of Michigan inflation expectations data released on Nov. 10 and the recent hawkish tone from many Fed officials.
New Zealand Dollar Technical Analysis: NZD/USD rises to 61.8% Fibonacci level
NZD/USD (the number of US dollars one New Zealand Dollar can buy) finds a bottom around 0.5862, the key 61.8% Fibonacci retracement of the recovery from year-to-date lows, and takes off! Up at the start of Tuesday’s US session after the release of US CPI data weakens the Dollar.
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New Zealand Dollar vs. US Dollar: Daily Chart
The pair is largely reversing the steady decline since November 3, however, it needs to make a high above 0.6001 to reaffirm belief in the short-term uptrend.
Breaking above 0.6001 would again confirm the short-term uptrend. The likely target would be the October high at 0.6055.
In case it fails to break above 0.6001, the risk of capitulation remains. A break below the day’s lows at 0.5862 would be necessary to signal a resumption of the short-term downtrend. The main downside targets would then be 0.5790, followed by 0.5773.
Medium and long-term trends remain bearish, so the bearish potential is high.
The bulls would have to surpass the October high of 0.6055 to change the medium-term outlook and indicate the possibility of the birth of a new uptrend. In that case, the target would be the 200-day SMA, around 0.6100.
New Zealand Dollar FAQ
What factors determine the evolution 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, increasing the attractiveness of 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
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
