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The New Zealand dollar trades mixed at the end of the week

  • The New Zealand Dollar is trading up against the US Dollar and down against the Japanese Yen.
  • The Kiwi is supported by a relatively benign inflation outlook among most counterparts.
  • The NZD/USD pair establishes a bottom and rebounds, resuming the uptrend of mid-week.

The New Zealand Dollar (NZD) is trading mixed at the end of the week, rising against the US Dollar (USD), the Euro (EUR) and the British Pound (GBP), but falling against the Japanese Yen (JPY), which strengthens as – according to analysts at Danske Bank – historically tends to do well during periods of declining global growth and inflation.

Daily Market Summary: Kiwi rises across most pairs on lower inflation prospects

  • The New Zealand Dollar is rising across most pairs – with the notable exception of the Yen – as recent inflation data from the US, Eurozone and UK showed slower than expected price rises.
  • This means their central banks are less likely to feel the need to raise interest rates.
  • Since higher interest rates tend to increase demand for a currency by attracting foreign capital inflows, this is weighing on the Dollar, Euro and Pound Sterling.
  • The decline in oil prices from $90 per barrel to the $70 level is expected to further reduce global inflation.
  • The Kiwi could have benefited from improved sentiment in China following the historic meeting between US President Joe Biden and Chinese President Xi Jinping in San Francisco, in which they decided to reopen clogged communication channels, according to Reuters.
  • The Yen outperforms the New Zealand Dollar for several reasons.
  • Falling oil prices support the outlook for Japan’s trade balance, as oil is its largest import.
  • The Yen tends to perform well in environments of declining growth and inflation.
  • Many investors believe that peak rates have been reached in the US, suggesting that the yield differential between the two countries will close, decreasing the use of the yen as a background currency with which to buy US dollars in the carry trade.

New Zealand Dollar Technical Analysis: NZD/USD Recovers

NZD/USD – the number of US dollars a New Zealand Dollar can buy – finds a bottom and recovers after its recent decline.

New Zealand Dollar vs. US Dollar: Daily Chart

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

The area surrounding the October high (0.6050-0.6055) has been touched several times this year, making it an important support and resistance level. As a result of its high importance, if it eventually breaks down, it will lead to more volatile bullish momentum.

A decisive break above the October high at 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. This is highlighted by the labels applied to the graph above. The L and R represent the left and right shoulders, while the H represents the head. If so, it could indicate that significant increases are coming if the neck line, at the October highs, is decisively surpassed.

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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