New Zealand Dollar sustains Thanksgiving gains
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- The New Zealand Dollar makes small gains in quiet holiday trading on Thursday.
- The Kiwi rises in line with global equities as Oil continues its downtrend and PMIs come in broadly positive.
- NZD/USD continues to recover. The medium-term outlook looks increasingly bullish.
The New Zealand Dollar (NZD) trades higher on Thursday, supported by a mildly positive market mood. The broad lift in sentiment is reflected by rises in most global equity indices. The Hang Seng and Nikkei 225 both inched higher during the Asian session, whilst in Europe the Euro STOXX 50 and FTSE 100 are also higher. In the US, markets remain closed for Thanksgiving.
The NZD/USD pair reached an intraday low at 0.6016 in the US morning session but has since risen to 0.6045 in the early afternoon. The pair has risen 25 pips or 0.41% at the time of writing.
The positive risk sentiment is probably due to the continued decline in Oil prices after OPEC+ delayed its decision on whether to continue cutting quotas. This will translate into lower input costs for companies and lower prices at fuel pumps for consumers. Other analysts posited an uptick in purchasing manager indices as a factor.
As a commodity currency, the Kiwi is sensitive to changing perceptions of global growth and generally reflects investor sentiment.
Daily digest market movers: New Zealand Dollar higher with risk appetite
- The New Zealand Dollar rises, benefiting from continued appetite for risk amid tumbling Oil prices and strong purchasing manager data.
- Asian stocks seem to have absorbed the bad news regarding Chinese asset manager Zhongzhi, another fatality of the China property bubble. The company announced it was insolvent with liabilities totalling between $58 and $64 billion in a letter to investors, according to a report by Reuters on Thursday.
- Contagion is unlikely according to experts: “Financial regulators are almost certain to intervene aggressively if there’s any sign that Zhongzhi’s troubles are spreading,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics, quoted by Reuters.
- Recent preliminary Purchasing Manager’ Index data for November in the Eurozone and UK both showed better-than-expected performances, also enhancing the economic outlook.
- The center-right New Zealand National Party has agreed to a deal to form a government with coalition partners. It means the country will end almost six years of reign for the left.
- Markets continue pricing in the possibility of Fed rate cuts by December 2024, which has led to a decline in US Treasury bond yields. Yields are closely correlated with the USD, resulting in overall upside bias for NZD/USD.
New Zealand Dollar technical analysis: NZD/USD breaks but does not hold above key resistance
NZD/USD – the number of US Dollars one New Zealand Dollar can buy – has retreated back below the key October high at 0.6055 after temporarily breaking above it on Tuesday.
New Zealand Dollar vs US Dollar: Daily Chart
Nevertheless, the pair remains in a short-term bullish trend, continuing to bias longs. Since the break above the October highs, it could also now be argued it is in a medium-term bullish trend.
Tuesday’s breakout, however, failed to hold and so it cannot be classed as decisive. This suggests caution in adopting an overly bullish outlook in the medium term. A re-break above the October high would give fresh impetus to the uptrend. A higher high above Tuesday’s 0.6086 high would provide confirmation.
The 200-day Simple Moving Average at 0.6100 is likely to provide a major resistance level to further upside, so price will probably stall there at first contact.
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. This adds more weight to the bullish argument.
The long-term trend is still bearish, suggesting a risk of downside remains.
New Zealand Dollar FAQs
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.