The NZD/USD pair updated a four-week price low on Wednesday, reacting to the results of the Reserve Bank of New Zealand’s October meeting. Although the bulls regained some lost ground (thanks to a correction in the greenback) during the European session, the bearish bias remains intact. This is due not only to the kiwi’s weakness but also the greenback’s broad strength.
Take note that the NZD/USD pair had been in a steady uptrend over the past three weeks. China played a significant role here. After a series of disappointing reports (published at the end of the summer), Beijing pleased investors with relatively strong data. According to the latest figures, China’s retail sales increased by 4.6% YoY in August, topping the 3.0% consensus forecast. Industrial production rose by 4.5% YoY in August, beating forecasts of 3.9%. China’s additional measures to support its national economy also contributed to the rise in market risk sentiment.
However, this week, the US dollar surged, influenced by hawkish views from the Federal Reserve, rising risk aversion sentiment, and 16-year high Treasury yields. The RBNZ merely contributed to the fundamental picture for the NZD/USD pair, mounting pressure on the kiwi.
Take note that ahead of the October meeting, most experts predicted that the RBNZ would maintain the status quo. There were no prerequisites for tightening monetary policy because central bank members didn’t have inflation data for the third quarter (the corresponding release is expected at the end of October). The latest data for the second quarter showed a slowdown in inflation in the country. Recall that the New Zealand Consumer Price Index fell to an annual figure of 6.0% in the second quarter, from 6.7% in the first quarter. This is the slowest pace of growth for the indicator since the fourth quarter of 2021. In quarterly terms, the index also reflected a downward trend, reaching 1.1% (the slowest pace of growth since the first quarter of 2021). Therefore, in many ways, the results of the meeting were predictable.
However, the subsequent rhetoric disappointed NZD/USD buyers. The central bank indicated that the current tightening cycle of monetary policy is over. The accompanying statement mentions that the interest rate should remain at a restrictive level “for a longer period.” The European Central Bank recently used a similar formulation when concluding its monetary policy tightening cycle.
Commenting on the current economic situation in the country, RBNZ officials positively assessed trends in the labor market. The final statement notes that the latest report indicates an increase in hiring and a decline in labor force shortages. As for inflation, the Committee stated that it still expects inflation to decrease to target levels “by the second half of next year.” However, the central bank acknowledges that there is a medium-term risk that economic activity and inflation “will not slow down as much as necessary.” These risks are due to the slowdown in global economic demand, especially in China. According to the RBNZ, this situation may have a stronger impact on commodity prices and New Zealand’s export income. Overall, this is another argument in favor of maintaining a wait-and-see stance by the New Zealand central bank.
The RBNZ’s cautious stance made it possible for the bears to regain the initiative, as now they have not only a strong US dollar but also a weak New Zealand dollar. In general, the current fundamental backdrop supports the kiwi’s decline in the medium term.
From a technical standpoint, you should consider selling the pair. In this case, bullish retracements favor the bears as they enable selling at a more favorable price. On all “higher” timeframes (from 4H and above), the pair is either on the lower Bollinger Bands line or between the middle and lower Bollinger Bands lines, indicating a bearish bias. On the daily and weekly timeframes, the Ichimoku indicator has formed a bearish “Parade of Lines” signal – the price is below all lines of the indicator, below the crossed Tenkan-sen and Kijun-sen lines, and below the Kumo cloud. This signal suggests bearish sentiments. The nearest support level (the target of the bearish movement) is at 0.5850 – the lower Bollinger Bands line on the daily chart. It’s too early to discuss more ambitious bearish targets (0.5800 and 0.5750) at this point.
The material has been provided by InstaForex Company – www.instaforex.com
The NZD/USD pair updated a four-week price low on Wednesday, reacting to the results of the Reserve Bank of New Zealand’s October meeting. Although the bulls regained some lost ground (thanks to a correction in the greenback) during the European session, the bearish bias remains intact. This is due not only to the kiwi’s weakness but also the greenback’s broad strength.
Take note that the NZD/USD pair had been in a steady uptrend over the past three weeks. China played a significant role here. After a series of disappointing reports (published at the end of the summer), Beijing pleased investors with relatively strong data. According to the latest figures, China’s retail sales increased by 4.6% YoY in August, topping the 3.0% consensus forecast. Industrial production rose by 4.5% YoY in August, beating forecasts of 3.9%. China’s additional measures to support its national economy also contributed to the rise in market risk sentiment.
However, this week, the US dollar surged, influenced by hawkish views from the Federal Reserve, rising risk aversion sentiment, and 16-year high Treasury yields. The RBNZ merely contributed to the fundamental picture for the NZD/USD pair, mounting pressure on the kiwi.
Take note that ahead of the October meeting, most experts predicted that the RBNZ would maintain the status quo. There were no prerequisites for tightening monetary policy because central bank members didn’t have inflation data for the third quarter (the corresponding release is expected at the end of October). The latest data for the second quarter showed a slowdown in inflation in the country. Recall that the New Zealand Consumer Price Index fell to an annual figure of 6.0% in the second quarter, from 6.7% in the first quarter. This is the slowest pace of growth for the indicator since the fourth quarter of 2021. In quarterly terms, the index also reflected a downward trend, reaching 1.1% (the slowest pace of growth since the first quarter of 2021). Therefore, in many ways, the results of the meeting were predictable.
However, the subsequent rhetoric disappointed NZD/USD buyers. The central bank indicated that the current tightening cycle of monetary policy is over. The accompanying statement mentions that the interest rate should remain at a restrictive level “for a longer period.” The European Central Bank recently used a similar formulation when concluding its monetary policy tightening cycle.
Commenting on the current economic situation in the country, RBNZ officials positively assessed trends in the labor market. The final statement notes that the latest report indicates an increase in hiring and a decline in labor force shortages. As for inflation, the Committee stated that it still expects inflation to decrease to target levels “by the second half of next year.” However, the central bank acknowledges that there is a medium-term risk that economic activity and inflation “will not slow down as much as necessary.” These risks are due to the slowdown in global economic demand, especially in China. According to the RBNZ, this situation may have a stronger impact on commodity prices and New Zealand’s export income. Overall, this is another argument in favor of maintaining a wait-and-see stance by the New Zealand central bank.
The RBNZ’s cautious stance made it possible for the bears to regain the initiative, as now they have not only a strong US dollar but also a weak New Zealand dollar. In general, the current fundamental backdrop supports the kiwi’s decline in the medium term.
From a technical standpoint, you should consider selling the pair. In this case, bullish retracements favor the bears as they enable selling at a more favorable price. On all “higher” timeframes (from 4H and above), the pair is either on the lower Bollinger Bands line or between the middle and lower Bollinger Bands lines, indicating a bearish bias. On the daily and weekly timeframes, the Ichimoku indicator has formed a bearish “Parade of Lines” signal – the price is below all lines of the indicator, below the crossed Tenkan-sen and Kijun-sen lines, and below the Kumo cloud. This signal suggests bearish sentiments. The nearest support level (the target of the bearish movement) is at 0.5850 – the lower Bollinger Bands line on the daily chart. It’s too early to discuss more ambitious bearish targets (0.5800 and 0.5750) at this point.
The material has been provided by InstaForex Company – www.instaforex.com
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