NZD/USD Price Forecast: Kiwi reversal puts 0.5700 under pressure
- NZD/USD reverses from 0.5787 as sellers regain control.
- RSI nears oversold territory, reinforcing downside momentum.
- Break below 0.5700 exposes 0.5671 and the year-to-date low.
The New Zealand Dollar (NZD) turns negative on Friday, down 0.11% against the US Dollar (USD), in a week that saw the Federal Reserve's (Fed) first rate hike in three years, which underpinned the Greenback against most G8 FX currencies. The NZD/USD pair trades at 0.5725 after reaching a high of 0.5787.
NZD/USD Price Forecast: Technical Outlook
Price action shows that sellers piled in strongly on Friday as NZD/USD spiked towards 0.5787, but the move reversed and the pair finished the week near Friday’s daily low.
The Relative Strength Index (RSI) is about to turn oversold for the second time in September, meaning that the downtrend is set to resume.
For a bearish continuation, NZD/USD must clear 0.5700. A decisive break will expose the July 8 daily low of 0.5671, before the pair challenges the year-to-date low of 0.5626.
On the other hand, if NZD/USD rises past 0.5750, it opens the door to test 0.5800. If breached, the pair’s next resistance is the 100-day Simple Moving Average (SMA) at 0.5834. Above is the 200-day SMA at 0.5853 and the 50-day SMA at 0.5856.
NZD/USD Price Chart – Daily
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
