Throughout August, the pair was strongly correlated with dairy futures. Then, the Federal Reserve signaled the start of a new easing cycle. Since then, however, sentiment towards the global economic outlook has changed. This sentiment is now dominating the NZD/USD pair.
New Zealand is taking another step towards recession. The country’s economy contracted in the second quarter of the year by 0.2% on an output basis. As a result, activity fell by 0.5% compared to the previous year.
Despite these negative figures, the result was better than expectations, which had expected a decline of 0.4%. This was partly due to a downward revision of Q3 growth from 0.2% to 0.1%. It is important to note that the quarterly and annual figures were better than the Reserve Bank of New Zealand’s forecasts of 0.5% and 0.7%.
Due to strong population growth, GDP per capita fell by 0.5% during the quarter and 2.7% over the year. This reflects the ongoing struggle to raise productivity. India is not the only developed country facing this challenge.
Real GDP remained flat during the quarter, but declined in per capita terms.
NZD/USD is a proxy for the global economic outlook. Despite the better-than-expected results, domestic factors continue to play a secondary role for the pair. Global factors are more influential in the performance of the New Zealand dollar.
The chart below illustrates this correlation, showing the 20-day rolling relationship with several currency, commodity and equity market variables.
The order of variables from top to bottom is as follows: AUD/USD in red, whole milk powder futures in purple, US 2-year yields in green, US 10-year yields in blue, Russell 2000 futures in black and crude oil futures in yellow.
NZD/USD is a proxy for the global economic outlook
After a strong correlation with dairy futures in August, this influence has been replaced by sentiment towards the global economic outlook. This sentiment is now taking the lead. NZD/USD is trending higher as momentum swings begin to take hold. On the daily chart, the pair appears to be preparing for another rally towards the August highs, with the price continuing to print lower levels within a broader uptrend. The RSI (14) has broken the previous downtrend, indicating a potential shift in momentum. Although the MACD has yet to confirm this, it appears to be turning higher, reinforcing the improved technical picture.
On the upside, the bullish breakout attempt following the Fed rate decision was rejected, mirroring the price action seen in other projects above the 0.6260 level recently. However, this may not bother bulls as long as risk appetite remains strong.
On the upside, a tougher test awaits at the intersection of the downtrend and horizontal resistance around the 0.6300 level. If this level is clearly broken, the next important levels will be 0.6370 and 0.6411.
On the downside, the 0.6157 level has acted as recent support and resistance, making it a point to watch in case of a decline. Next, the slight uptrend that started on August 15, as well as the support zone that includes the 50 and 200-day moving averages up to 0.6086, are noteworthy levels. In the near term, the NZD/USD pair may be affected by the upcoming Australian jobs report, given its strong correlation with the AUD/USD pair. I tend to ignore any reaction we see.
NZD/USD Analysis : NZD/USD pair represents the exchange rate of the New Zealand dollar against the US dollar, and is one of the major pairs in the forex market. This pair reflects the economic factors in both New Zealand,.
Factors Influencing NZD/USD
Economic Data:
Gross Domestic Product (GDP): GDP growth in New Zealand and the United States has a significant impact on the value of the pair. If the New Zealand economy is growing faster, the NZD/USD may rise.
Unemployment Rates: Low unemployment rates indicate a strong economy, which supports the value of the New Zealand dollar.
Monetary Policy:
Reserve Bank of New Zealand: The interest rate policies adopted by the bank directly affect the value of the NZD. Raising interest rates may lead to a rise in the value of the New Zealand dollar.
Fed: Interest rate movements in the United States play an important role. If the Fed raises rates, it may lead to a weakening of the NZD/USD.
Commodity Prices: New Zealand relies on exports of commodities such as dairy and meat. Higher prices of these commodities boost the value of the New Zealand dollar.
Global Sentiments: Global geopolitical and economic risks affect risk appetite. In times of uncertainty, investors tend to prefer the US dollar as a safe haven, which may weaken the NZD.
Technical Analysis
Daily Chart: The daily chart is an important tool for analyzing trends. Patterns such as tops and bottoms can provide details about potential price action.
Technical Indicators:
Relative Strength Index (RSI): Used to determine whether the pair is in overbought or oversold territory.
MACD indicates changes in momentum, and is an important indicator for trend analysis.
Future Outlook
Expected Volatility: NZD/USD may experience significant volatility due to upcoming economic events, such as interest rate decisions and economic reports.
Trading Opportunities: Traders should follow economic news and changes in monetary policy to make informed decisions.
The NZD/USD pair is a powerful tool for investors and traders in the forex market…
