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New Zealand Dollar Talking Points

Updates to New Zealand’s Balance of Payments (BoP) may keep NZD/USD afloat as figures are anticipated to show a narrowing trade balance deficit in October, but the advance from the monthly-low (0.6514) may continue to unravel as the bullish momentum carried over from the previous month starts to abate.

Image of daily change for major currencies

NZD/USD Correction Starts to Unravel as Bullish Momentum Abates

Image of daily change for nzdusd rate

The near-term correction in NZD/USD appears to be stalling ahead of the Group of 20 (G20) Summit slated for the end of the month as the U.S. and China struggle to reach a trade deal, and the New Zealand dollar stands at risk of facing headwinds ahead of the next Reserve Bank of New Zealand (RBNZ) meeting on February 12 as the central bank remains in no rush to lift the official cash rate (OCR) off of the record-low.

Image of DailyFX economic calendar

A minor improvement in New Zealand’s trade balance may do little to alter the monetary policy outlook as the RBNZ warns that ‘downside risks to the growth outlook remain,’ and it seems as though Governor Adrian Orr & Co. is in no rush to switch gears as officials ‘expect to keep the OCR at this level through 2019 and into 2020.’ It seems as though the RBNZ will continue to strike a dovish forward-guidance for monetary policy amid the ‘risk that trade barriers increase and undermine global growth,’ and the central bank may ultimately brace for a weaker exchange rate as ‘implied expectations for the OCR based on market pricing have declined.’

Image of RBNZ interest rate decision

In turn, the RBNZ’s wait-and-see approach instills a long-term bearish outlook for NZD/USD especially as the Federal Reserve is widely expected to deliver a 25bp rate-hike in December, and recent price action raises the risk for a further decline in the exchange rate as it extends the string of lower highs & lows from late last week. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

NZD/USD Daily Chart

Image of nzdusd daily chart
  • The advance from the monthly-low (0.6514) may continue to unravel as NZD/USD carves a bearish sequence, while the Relative Strength Index (RSI) snaps the upward trend carried over from the previous month.
  • The failed run at the 0.6930 (23.6% expansion) to 0.6960 (38.2% retracement) region brings the Fibonacci overlap around 0.6710 (61.8% expansion) to 0.6720 (61.8% expansion) back on the radar, with the next area of interest coming in around 0.6600 (23.6% retracement) to 0.6630 (78.6% expansion).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.