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New Zealand Dollar continues climbing against US Dollar

  • The New Zealand Dollar trades higher against the US Dollar but lower versus the Yen on Friday.
  • The Kiwi is supported by a relatively benign outlook for inflation amongst most counterparts. 
  • NZD/USD establishes a floor and rebounds, resuming the uptrend from midweek.

The New Zealand Dollar (NZD) is trading mixed at the end of the week, rising versus the US Dollar (USD), the Euro (EUR) and the Pound (GBP) but falling against the Japanese Yen (JPY), which is strengthening because – according to analysts at Danske Bank – it historically tends to do well during periods of declining global growth and inflation.    

The NZD/USD pair, trading at 0.5984, has risen 0.22% at the time of writing on Friday and 1.61% for the week.

Daily digest market movers: Kiwi rises in most pairs on lower inflation outlook

  • The New Zealand Dollar is rising in most pairs – the notable exception of the Yen – as recent inflation data from the US, Eurozone and UK showed slower-than-expected price rises. 
  • This means their central banks are less likely to feel the need to raise interest rates. 
  • Since higher interest rates tend to increase demand for a currency because they attract foreign inflows of capital, this is weighing on USD, EUR and GBP. 
  • The decline in Oil prices from the $90s per barrel to the $70s mark is further expected to reduce global inflation. 
  • The Kiwi may have benefited from a lift of sentiment in China after the landmark meeting between US President Joe Biden and Chinese President Xi Jinping in San Francisco, at which they decided to reopen stuck communication channels, according to Reuters. 
  • The Yen outperforms the NZD on a variety of factors. 
  • Falling Oil prices support the outlook for the Japanese Trade Balance since Oil is its largest import. 
  • The Yen tends to do well in environments of declining growth and inflation. 
  • Many investors think peak rates have been reached in the US, suggesting the yield differential between the two countries will close, decreasing the use of the JPY as a funding currency with which to buy US Dollars in the carry trade. 

New Zealand Dollar technical analysis: NZD/USD finds its feet again

NZD/USD – the number of US Dollars one New Zealand Dollar can buy – finds a floor and recovers after its recent pullback. 

New Zealand Dollar vs US Dollar: Daily Chart

The pair remains in a short-term bullish trend, biasing longs; this holds true as long as the November 14 lows at 0.5863 stay intact. 

The zone around the October high (0.6050-0.6055) has been touched multiple times this year, making it an important support and resistance level. As a result of its heightened significance, if it is eventually broken, it will yield a more volatile push higher.

A decisive break above the 0.6055 October high would change the outlook to bullish in the medium term, indicating the possibility of the birth of a new uptrend. Such a move would then initially target the 200-day Simple Moving Average (SMA) at around 0.6100.

A possible bullish inverse head and shoulders pattern may have formed at the lows. This is highlighted by the labels applied to the chart above. The L and R stand for the left and right shoulders, whilst H for the head. If so, it could indicate substantial upside to come if the neckline – at the October highs – is decisively breached. 

A decisive break would be one accompanied by a long green candle or three green candles in a row. 

As things stand, the medium and long-term trends are both still bearish, however, suggesting the potential for more downside remains strong.

Nasdaq FAQs

What is the Nasdaq?

The Nasdaq is a stock exchange based in the US that started out life as an electronic stock quotation machine. At first, the Nasdaq only provided quotations for over-the-counter (OTC) stocks but later it became an exchange too. By 1991, the Nasdaq had grown to account for 46% of the entire US securities’ market. In 1998, it became the first stock exchange in the US to provide online trading. The Nasdaq also produces several indices, the most comprehensive of which is the Nasdaq Composite representing all 2,500-plus stocks on the Nasdaq, and the Nasdaq 100.

What is the Nasdaq 100?

The Nasdaq 100 is a large-cap index made up of 100 non-financial companies from the Nasdaq stock exchange. Although it only includes a fraction of the thousands of stocks in the Nasdaq, it accounts for over 90% of the movement. The influence of each company on the index is market-cap weighted. The Nasdaq 100 includes companies with a significant focus on technology although it also encompasses companies from other industries and from outside the US. The average annual return of the Nasdaq 100 has been 17.23% since 1986.

How can I trade the Nasdaq 100?

There are a number of ways to trade the Nasdaq 100. Most retail brokers and spread betting platforms offer bets using Contracts for Difference (CFD). For longer-term investors, Exchange-Traded Funds (ETFs) trade like shares that mimic the movement of the index without the investor needing to buy all 100 constituent companies. An example ETF is the Invesco QQQ Trust (QQQ). Nasdaq 100 futures contracts allow traders to speculate on the future direction of the index. Options provide the right, but not the obligation, to buy or sell the Nasdaq 100 at a specific price (strike price) in the future.

What Factors Drive the Nasdaq 100

Many different factors drive the Nasdaq 100 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the Nasdaq 100 as it affects the cost of credit, on which many corporations are heavily reliant. As such the level of inflation can be a major driver too as well as other metrics which impact on the decisions of the Fed.

Author

Joaquin Monfort

Joaquin Monfort is a financial writer and analyst with over 10 years experience writing about financial markets and alt data. He holds a degree in Anthropology from London University and a Diploma in Technical analysis.

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