NZD/USD Price Forecast: Sticks to modest recovery gains above 0.5600 ahead of US NFP

NZD/USD attracts some buyers on Thursday, though the upside seems capped amid a firmer USD.
The recent price action constitutes the formation of a falling wedge and favors bullish traders.
The broader technical setup, however, warrants some caution ahead of the crucial US NFP report.

Haresh Menghani FXStreet

The NZD/USD pair gains some positive traction on Thursday and recovers a part of the previous day's heavy losses to the lowest level since April 9. Spot prices stick to intraday gains above the 0.5600 mark through the early European session, though a sustained US Dollar (USD) buying might cap the upside ahead of the delayed release of the US Nonfarm Payrolls (NFP) report for September.

From a technical perspective, the recent downfall witnessed over the past two months or so along two converging trend lines constitutes the formation of a bullish falling wedge on the daily chart. That said, the recent repeated failures to build on the move beyond the 50-day Simple Moving Average (SMA) and negative oscillators warrant some caution before positioning for any further near-term appreciating move for the NZD/USD pair.

Meanwhile, any subsequent move up is more likely to confront a stiff barrier near the 0.5665-0.5670 region, representing the top boundary of the falling wedge. Some follow-through buying could trigger a short-covering rally and lift the NZD/USD pair to the 0.5700 mark en route to the 50-day SMA pivotal resistance, currently pegged near the 0.5765 region. A sustained move beyond the latter will confirm that spot prices have bottomed out.

On the flip side, acceptance below the 0.5600 round figure and a subsequent break through the falling wedge support, around the 0.5570-0.5565 region, will be seen as a fresh trigger for bearish traders. The NZD/USD pair might then accelerate the downfall towards testing levels below the 0.5500 psychological mark, or a multi-year low touched in April, and prolong a nearly four-month-old downtrend.

NZD/USD daily chart

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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