The New Zealand dollar strengthened to ten-week highs against a weaker US dollar

VaselineAugust 21, 2024

0 4 minutes read

The New Zealand dollar strengthened to ten-week highs against a weaker US dollar

The New Zealand dollar extends its lead in the first Asian session on Wednesday.
A weaker US dollar and positive risk sentiment are supporting NZD/USD.
Investors will focus on the first reading of the US S&P global PMI for August on Wednesday.

The New Zealand Dollar (NZD) rose on Wednesday as the USD Index (DXY) extended its decline to near annual lows. Improved risk sentiment after China rolled out additional measures to support the property sector is boosting Kiwis, with China being New Zealand’s largest trading partner.

On the other hand, dovish remarks from the Reserve Bank of New Zealand (RBNZ) after a surprise interest rate cut last week could limit the pair’s upside. Investors will be keeping an eye on the US S&P preliminary global PMI for August due on Wednesday. All eyes will be on Fed Chairman Powell’s speech at the Jackson Hole Symposium on Friday. Any dovish comments from Powell are likely to undermine the USD and create a tailwind for NZD/USD.

Daily Digest Market Movers: New Zealand dollar remains strong amid dovish Fed

The People’s Bank of China (PBOC) decided to keep the one-year and five-year prime lending rates at 3.35 percent and 3.85 percent, respectively, on Tuesday.
China has implemented additional measures to boost the real estate sector. At least 10 Chinese cities have relaxed or abandoned price guidelines for new homes to allow market demand to play a bigger role, according to Bloomberg.
New Zealand’s trade balance came in at -$9.29 billion for the year in July, up from -$9.5 billion previously. Exports fell to $6.15 billion in July from $6.17 billion in June, while imports rose to $7.11 billion from $5.45 billion in previous readings.
Federal Reserve (Fed) Governor Michelle Bowman said on Tuesday that she remains cautious about any policy change because of what she sees as continued upside risks to inflation. She warned that overreacting to any single data point could jeopardize progress already made, according to Reuters.
Markets now place a near 67.5% odds on a Fed rate cut of 25 basis points (bps) at its September meeting, down from 77% on Tuesday, according to CME’s FedWatch tool.

Technical Analysis: The New Zealand dollar resumes its constructive outlook

The New Zealand dollar is trading on a stronger note on the day. The NZD/USD pair maintains bullish vibes on the daily chart as the pair is holding above the downtrend line and 100-day exponential moving average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which is above the median line near 65.60, suggesting further upside looks favorable.

The immediate resistance level appears at 0.6222, the June 12 high. Further north, the next hurdle is seen at 0.6279, a January 12 high. The additional filter to watch is 0.6360, a December 29, 2023 high.

On the downside, the psychological mark of 0.6130 acts as an initial support level for the pair. The next level of contention is located near the resistance-turned-support level at 0.6070. Sustained trading below this level could lead to a decline towards 0.5974, the August 15 low.

New Zealand Dollar FAQ

The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is largely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some unique features that can make the NZD move as well. The performance of the Chinese economy tends to move Kiwis as China is New Zealand’s largest trading partner. Bad news for the Chinese economy likely means fewer New Zealand exports to the country, hitting the economy and therefore its currency. Another factor that moves the NZD is the price of dairy products, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and thus the NZD.

The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with a focus on keeping it close to the 2% midpoint. For this purpose, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will raise interest rates to cool the economy, but this move will also raise bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate differential, or how New Zealand rates are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.

Macroeconomic data released in New Zealand is key to assessing the state of the economy and can impact the valuation of the New Zealand dollar (NZD). A strong economy based on high 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 coupled with increased inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.

The New Zealand Dollar (NZD) tends to strengthen during periods of risk or when investors perceive broader market risks to be low and are bullish on growth. This tends to lead to a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during periods of market turbulence or economic uncertainty as investors tend to sell riskier assets and flee to more stable havens.

VaselineAugust 21, 2024

0 4 minutes read

Daily Digest Market Movers: New Zealand dollar remains strong amid dovish Fed

Technical Analysis: The New Zealand dollar resumes its constructive outlook

New Zealand Dollar FAQ

Vaseline

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