New Zealand Dollar slides against Greenback on surging US Treasury yields

The New Zealand Dollar initially bounced on Thursday after finding a floor at the key 50-day SMA.
The Kiwi's stance against the Greenback reemerged later in the US session, however, after US Treasury yields jumped.
NZD/USD remains in a long-term downtrend, with US labor data and commentary from Fed’s Powell as potential near-term influences.

The New Zealand Dollar (NZD) continued its downtrend against the US Dollar (USD) late Thursday despite bouncing off technical support at the important 50-day Simple Moving Average (SMA) during the US morning session. The US Dollar surged in strength in the afternoon following a poor 30-year bond auction held by the US Treasury Department, which forced the NZD/USD to drop preciptously. The 5, 10 and 30-year US Treasury yields all rose more than 2%.

Daily digest market movers: New Zealand Dollar strengthens after meeting key average

The New Zealand Dollar trades higher against the US Dollar on Thursday despite the USD strengthening against most counterparts as reflected by the rise in the US Dollar Index (DXY).
Downbeat Chinese inflation data continues to dampen the outlook for global growth. This would normally weigh on NZD, as it is a major commodity exporter – especially of dairy products – to China. However, the currency ignores the data and rises anyway.
The Kiwi’s unilateral strength is probably as a result of the NZD/USD reaching a significant chart level, the 50-day SMA, and then bouncing.
The Chinese CPI unexpectedly declined by 0.2% October compared with the same month a year earlier, versus the 0.0% in the previous month. Experts had expected a 0.1% fall.
Deflation in China suggests signs the economy is cooling. Normally this would have a negative knock-on effect on NZD.
The Kiwi itself weakened on the back of an inflation report from the RBNZ on Wednesday. The report showed both one-year-out and two-years-out inflation expectations for New Zealand fell in Q3 compared to the previous quarter.
Actual inflation in New Zealand, as reported by Stats NZ, also showed a drop in inflation to 5.6% in Q3 versus the 6.0% of the previous quarter.
The lower inflation expectations imply the RBNZ is less likely to raise interest rates. Since higher interest rates tend to strengthen a currency by increasing capital inflows from foreign investors searching for higher returns, the lower data weighed on the Kiwi.
The widespread market view is that the US Federal Reserve (Fed) is now unlikely to raise interest rates further. However, recent commentary from Fed officials has suggested some still see the need for more interest rate hikes, muddying the picture.
With the Fed Funds Rate currently at 5.25%-5.50%, there is little incentive for traders to borrow in either NZD or USD and invest in the other, an operation known as the “carry trade”, that is a major contributor to fluctuating global FX demand.
US Initial Jobless Claims (Nov 3) came out slightly below expectations at 217K, versus estimates of 218K and 220K previously. Continuing Jobless Claims (Oct 27), rose to 1.835M when 1.820M had been expected from 1.812M previously.
A speech from Federal Reserve Chair Jerome Powell scheduled for 19:00 GMT could impact the NZD/USD, on Thursday.

New Zealand Dollar technical analysis: NZD/USD bounces of 50-day SMA

NZD/USD – the number of US Dollars one New Zealand Dollar can buy – bounces off the key 50-day SMA and rises 0.35% at the time of writing on Thursday, to trade at 0.5929.

At the same level as the 50-day sits the 0.382 Fibonacci retracement of the rally from off the late October year-to-date lows, further reinforcing its role as springboard.

New Zealand Dollar vs US Dollar: Daily Chart

The trend is bullish in the short term and a decisive break above the November 3 high at 0.6001 would reconfirm this bullish bias, with a likely target thereafter at the 0.6055 October high.

However, the medium and long-term trends are still bearish, suggesting the potential for more downside is strong.

New Zealand Dollar vs US Dollar: Daily Chart

A break below 0.5884 would signal a continuation of the broader downtrend to a target at the 0.5773 October low.

Bulls would have to push above the 0.6055 October high to change the outlook in the medium term and suggest the possibility of the birth of a new uptrend.

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.

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