New Zealand Dollar holds onto week's gains on Thursday

The New Zealand Dollar makes small gains in quiet holiday trading on Thursday.
The Kiwi rises in line with global equities as Oil continues its downtrend and PMIs come in broadly positive.
NZD/USD continues to recover. The medium-term outlook looks increasingly bullish.

The New Zealand Dollar (NZD) trades higher on Thursday, supported by a mildly positive market mood. The broad lift in sentiment is reflected by rises in most global equity indices. The Hang Seng and Nikkei 225 both inched higher during the Asian session, whilst in Europe the Euro STOXX 50 and FTSE 100 are also higher. In the US, markets remain closed for Thanksgiving.

The NZD/USD pair reached an intraday low at 0.6016 in the US morning session but has since risen to 0.6044 in the early afternoon. The pair has risen 23 pips or 0.38% at the time of writing on Thursday and is up nearly 1% for the week

The positive risk sentiment is probably due to the continued decline in Oil prices after OPEC+ delayed its decision on whether to continue cutting quotas. This will translate into lower input costs for companies and lower prices at fuel pumps for consumers. Other analysts posited an uptick in purchasing manager indices as a factor.

As a commodity currency, the Kiwi is sensitive to changing perceptions of global growth and generally reflects investor sentiment.

Daily digest market movers: New Zealand Dollar higher with risk appetite

The New Zealand Dollar rises, benefiting from continued appetite for risk amid tumbling Oil prices and strong purchasing manager data.
Asian stocks seem to have absorbed the bad news regarding Chinese asset manager Zhongzhi, another fatality of the China property bubble. The company announced it was insolvent with liabilities totalling between $58 and $64 billion in a letter to investors, according to a report by Reuters on Thursday.
Contagion is unlikely according to experts: "Financial regulators are almost certain to intervene aggressively if there's any sign that Zhongzhi's troubles are spreading," said Christopher Beddor, deputy director of China research at Gavekal Dragonomics, quoted by Reuters.
Recent preliminary Purchasing Manager’ Index data for November in the Eurozone and UK both showed better-than-expected performances, also enhancing the economic outlook.
The center-right New Zealand National Party has agreed to a deal to form a government with coalition partners. It means the country will end almost six years of reign for the left.
Markets continue pricing in the possibility of Fed rate cuts by December 2024, which has led to a decline in US Treasury bond yields. Yields are closely correlated with the USD, resulting in overall upside bias for NZD/USD.

New Zealand Dollar technical analysis: NZD/USD breaks but does not hold above key resistance

NZD/USD – the number of US Dollars one New Zealand Dollar can buy – has retreated back below the key October high at 0.6055 after temporarily breaking above it on Tuesday.

New Zealand Dollar vs US Dollar: Daily Chart

Nevertheless, the pair remains in a short-term bullish trend, continuing to bias longs. Since the break above the October highs, it could also now be argued it is in a medium-term bullish trend.

Tuesday’s breakout, however, failed to hold and so it cannot be classed as decisive. This suggests caution in adopting an overly bullish outlook in the medium term. A re-break above the October high would give fresh impetus to the uptrend. A higher high above Tuesday’s 0.6086 high would provide confirmation.

The 200-day Simple Moving Average at 0.6100 is likely to provide a major resistance level to further upside, so price will probably stall there at first contact.

A possible bullish inverse head-and shoulders (H&S) pattern may have formed at the lows. The pattern is identified by the labels applied to the chart above. L and R stand for the left and right shoulders, whilst H stands for the head. The target for the inverse H&S is at 0.6215. This adds more weight to the bullish argument.

The long-term trend is still bearish, suggesting a risk of downside remains.

RBNZ FAQs

What is the Reserve Bank of New Zealand?

The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.

How does the Reserve Bank of New Zealand’s monetary policy influence the New Zealand Dollar?

The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.

Why does the Reserve Bank of New Zealand care about employment?

Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.

What is Quantitative Easing (QE)?

In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.

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