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NEW ZEALAND DOLLAR TALKING POINTS

NZD/USD struggles to hold its ground as market participants digest the fresh developments coming out of the New Zealand economy, and the exchange rate appears to be on track to test the November-low (0.6780) as the bearish momentum appears to be gathering pace.With the Reserve Bank of New Zealand (RBNZ) interest rate decision out of the way, attention now turning to the annual budget statement as Finance Minister Grant Robertson is scheduled to deliver the updates on May 17.

Image of daily change for major currencies

FINANCE MINISTER GRANT ROBERTSON TO DELIVER ANNUAL BUDGET STATEMENT

Image of daily change for NZDUSD

The administration under Prime Minister Jacinda Ardern is likely to reiterate its plan to further develop the Living Standards Framework (LSF) as officials focus on the promoting the wellbeing and living standard for households. The fiscal strategy is likely to reiterate that the economic outlook remains ‘supported by household income growth, continued population growth, low interest rates and a terms of trade at record levels,’ along with the Budget Responsibility Rules which are to:

  • Deliver a sustainable operating surplus across an economic cycle.
  • Reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office.
  • Prioritise investments to address the long-term financial and sustainability challenges facing New Zealand.
  • Take a prudent approach to ensure expenditure is phased, controlled and directed to maximise its benefits. The Government will maintain its expenditure to within the recent historical range of spending to GDP ratio.
  • Ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy.

With that said, more of the same from Mr. Robertson may do little to alter the near-term outlook for NZD/USD as the RBNZ remains in no rush to lift the cash rate off of the record-low, and recent price action raises the risk for a further decline in the exchange rate as bearish momentum from earlier this year appears to be reasserting itself.

NZD/USD RISKS FURTHER LOSSES AS RELATIVE STRENGHT INDEX (RSI) DIPS BACK INTO OVERSOLD TERRITORY

The New Zealand dollar may continue to weaken against its U.S. counterpart as RBNZ Governor Adrian Orr largely endorses a wait-and-see approach for monetary policy, and the NZD/USD rate may face fresh 2018 lows as the Relative Strength Index (RSI) dips back into oversold territory. The development suggests the bearish momentum is gathering pace as the oscillator extends the downward trend from earlier this year, with kiwi-dollar at risk of making a run at the November-low (0.6780) as long as the momentum indicator holds below 30.

NZD/USD DAILY CHART

Image of NZDUSD daily chart
  • A close below the 0.6950 (61.8% expansion) to 0.6960 (38.2% retracement) region opens up the Fibonacci overlap around 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion).
  • Next area of interest comes in around 0.6780 (100% expansion), which lines up with the November-low, followed by the 0.6710 (61.8% expansion) region.

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.