- The New Zealand Dollar recovers on Tuesday after drifting lower for over 10 days straight.
- The Kiwi rebounds after US CPI data shows an unexpected slowdown in October, weighing on USD and lifting sentiment.
- NZD/USD reverses its bearish short-term trajectory and aims for the November highs.
The New Zealand Dollar (NZD) surged more than 2.3% against the US Dollar (USD) on Tuesday after softer-than-expected US inflation data led the Greenback to fall off a cliff. US Treasury yields plummeted more than 4% for some tenures, which has led the market to turn its back on the USD.
For NZD/USD, the short-term technical situation dramatically reverses after temporarily flirting with deeper losses. An earlier break below key support at 0.5874 had suggested a possible continuation lower, but the pair reversed at a key Fibonacci level and is now trading at 0.6008.
Daily digest market movers: New Zealand Dollar: US CPI brings uplift to Kiwi
- The New Zealand Dollar trades higher after the release of US Consumer Price Index (CPI) data shows a slowdown in inflation in October and triggers an improvement in risk appetite.
- As a commodity currency, the NZD tends to do well when market sentiment is risk-on.
- US Consumer Price Index (CPI) data showed no-change in broad headline inflation in October (0.0%) when economists had forecast a rise of 0.1% MoM. Year-on-year, a 3.2% increase was registered when 3.3% had been expected.
- For Core CPI, the data showed a 0.2% increase MoM versus 0.3% expected and 4.0% YoY against 4.1% forecast.
- The data suggests even less likelihood of the Federal Reserve (Fed) raising interest rates at their December meeting or at the start of 2024. Probabilities were already low at about 15%, but these have dropped even further following the release.
- The US Dollar has fallen after the data as the prospect of no further increases to interest rates makes the US a less attractive place for global investors to park their capital, reducing demand for the USD.
- Chinese Industrial Production and Retail Sales data out on Wednesday morning at 02:00 GMT could also impact the Kiwi since China is its largest trading neighbor.
- Recent downbeat Chinese inflation data has dampened the outlook for global growth, weighing on NZD last week.
- An inflation report from the RBNZ showed both one-year-out and two-years-out inflation expectations for New Zealand falling in Q3 compared to the previous quarter.
- The lower inflation expectations imply the RBNZ is less likely to raise interest rates.
- Tuesday’s lower-than-estimated CPI data will have overshadowed both the higher University of Michigan inflation expectations data out on November 10, and the recent hawkish tone of many Fed officials.
New Zealand Dollar technical analysis: NZD/USD surges higher at 61.8% Fib level
NZD/USD – the number of US Dollars one New Zealand Dollar can buy – finds a floor at around 0.5862, the key 61.8% Fibonacci retracement of the rally from the year-to-date lows, and lifts off! It surges higher at the start of the US Session on Tuesday after the release of US CPI data weakens the US Dollar.
New Zealand Dollar vs US Dollar: Daily Chart
The pair is in a large part reversing the steady decline since November 3, however, it needs to make a higher high above 0.6001 to re-affirm belief in the short-term uptrend.
A break above 0.6001 would confirm the short-term bullish bias again. The likely target thereafter would be the 0.6055 October high.
In the event it is unable to break above 0.6001, there remains a risk of a capitulation. A break below the 0.5862 day’s lows would be required to signal a resumption of the short-term bear trend. The main targets to the downside would then be 0.5790, followed by 0.5773.
The medium and long-term trends are both still bearish, suggesting the potential for more downside remains strong.
Bulls would have to push above the 0.6055 October high to change the outlook in the medium term and indicate the possibility of the birth of a new uptrend. Such a move would then target the 200-day Simple Moving Average (SMA) at around 0.6100.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
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