Tag: NZDUSD

The New Zealand dollar has been in perpetual downtrend for much of 2019. It didn’t start the new decade any differently as the kiwi has slid almost 300 pips agains the U.S. dollar and a whopping 1,000 pips against the Great British pound.

On the bigger timeframes, it is clear that the $GBPNZD is finding resistance at the big 123% Fibonacci extension level. The 2.05 resistance level is also not too far from that level giving some strong resistance confluence for bulls. This area continues to provide a headwind for bulls, even in this new week of trading.

A key driver of NZD weakness last year was the slashing of interest rates by the Reserve Bank of New Zealand (RBNZ). The RBNZ cut interest rates by 100 basis points last year with two 50 basis point cuts. That’s a lot. And those 2 interest rate cuts came within 3 months of each other. So the RBNZ really surprised markets last week. Though they kept interest rates on hold at 1%, they were more hawkish than expected in their monetary policy statement. Despite the coronavirus outbreak worrying central banks around the world right now, the RBNZ is more optimistic about employment and the economy than it had been in 2019 as inflation moves closer to the RBNZ’s target. The biggest influence to this change in outlook, however, has been new fiscal policy from the New Zealand government around infrastructure spending. The central bank expects this to boost consumer spending and GDP which is only good news for the NZD.

Despite the rosier fundamentals, the market has not taken much notice. Yet. The $GBPNZD remains rangebound between the 123% Fibonacci level at 2.0409 and the major 2.00 support level. The shift in fundamentals favors more downside moves in the $GBPNZD as the NZD should start to move higher. Look for rallies to continue to be met with sellers at the resistance level. Only a hold above the 2.05 level changes the downside bias in $GBPNZD.

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Read more:

• Official Cash Rate (OCR) decisions and current rate (Reserve Bank of New Zealand)
• First Impressions: RBNZ keeps the OCR at 1.0% (Westpac IQ)

The NZD trades in the shadow of the almighty AUD and the more familiar CAD thanks to its proximity to the US. While the NZD is a commodity play, it is not a play on energy like the AUD and CAD, but on foods like dairy and cattle. Even as inflation has edged lower in many countries, food prices remain stubbornly high. The high prices in these and other agricultural commodities have gripped the NZD in a bull rally for much of 2012.

The $GBPNZD enjoyed an incredible rally in the 1st half of the year. So it seemed natural that a pullback occurred off the key resistance level of 2.10. But when the $GBPNZD broke below the major psychological level at 2.00, price broke down to new lows at 1.47. Since that low, price has marched higher. Last week, price staged a breakout above the previous high at 1.9825.

The new week open has seen price gap higher to a high of 1.9880. The pair is firmly bullish to open the new week. The key level this week is 1.9750. If $GBPNZD remains supported above 1.9750, price targets a move above 2.00. A close below 1.9750 sees price move lower below 1.95. Because the fundamentals still look strong, it will be interesting how price behaves at the 2.00 level which is also the 50% Fibonacci level of the entire breakdown. Trade what you see.

 

Disclosure: No position