New Zealand Dollar holds around 0.6100 against Greenback for 0.5% gain

The New Zealand Dollar has risen about 0.5% on Monday against the US Dollar.
Kiwi shakes off uncertainty ahead of RBNZ meeting this week as some analysts are hawkish.
NZD/USD finally meets its date with the 200-day SMA and pokes its head above 0.6100.

The New Zealand Dollar (NZD) has gained close to half a percentage point to start the week on Monday, rebounding after an early pullback stemming from Chinese growth concerns. The Kiwi has reached its highest value since August 10, completing a daily high at 0.6107 before pushing back to the vicinity of 0.6100.

Investor sentiment soured somewhat during the Asian session, however, and investors see a risk of a slightly hawkish tone coming from the Reserve Bank of New Zealand (RBNZ) at their meeting on Thursday.

The Hang Seng index ends Monday down 0.20% after disappointing economic data from China, whilst Japan’s Nikkei falls over half a percent after the Bank of Japan (BoJ) gets more vociferous about the threat of inflation – thereby raising the risk of higher growth-stunting interest rates and a weaker Yen.

Given New Zealand’s close trade ties with Asia, a negative outlook for the region raises the specter of reduced demand for New Zealand exports and by association its currency.

Daily digest market movers: New Zealand Dollar pulls back on Asia growth fears

The New Zealand Dollar falls against most counterparts after data shows lower-than-expected profits in Chinese Industrial firms in October, despite a rise compared to the previous year. The 2.7% YoY rise sees profit growth narrow back to single digits, following an 11.9% increase in September and a 17.2% gain in August, according to Reuters.
The data suggests the Chinese authorities will have to continue providing stimulus to prompt growth, adds the Reuters report.
It comes after the bad news last Friday 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, according to a report by Reuters.
Some investors see the risk of a hawkish tilt at the November 29 RBNZ policy meeting on Thursday, which could push the Kiwi higher.
"..with so much easing now priced in, the risks could be skewed slightly to the upside for the Kiwi on a non-dovish outcome," say economists at ANZ Bank in a note.

New Zealand Dollar technical analysis: NZD/USD meets 200-day Simple Moving Average

NZD/USD – the number of US Dollars that can be bought with one New Zealand Dollar – pushes higher amid continued US Dollar weakness, despite the NZD falling in most other pairs.

The NZD/USD meets the key 200-day Simple Moving Average (SMA) and pokes above the 0.6100 level – an over 3-month high, on Monday.

New Zealand Dollar vs US Dollar: Daily Chart

Despite meeting tough resistance at the 200-day SMA and pulling back, the pair is in a short and medium-term bullish trend, which continues to bias longs over shorts.

The MACD momentum indicator is rising in line with price suggesting the medium-term uptrend is healthy.

If Monday ends the day as a spinning top Japanese candlestick pattern, as looks possible, it might suggest a temporary pullback is about to emerge, however. This is reinforced by the proximity of the 200-day SMA serving as an antagonist to further upside. Given the trading session has not ended yet, however, it's still too early to say.

The Kiwi has also formed a possible bullish inverse head and shoulders (H&S) pattern at the lows. The inverse H&S 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. The pair has already breached the neckline at the October highs, confirming activation of the pattern’s target.

Another way of looking at the lines on the chart is that the pattern is in fact a ‘cup and handle’ pattern, with the ‘head’ of the inverse H&S actually a ‘cup’ and the right shoulder a ‘handle’. Regardless of which pattern is forming, the target would be similar to that of the inverse H&S.

The identification of possible reversal patterns adds more weight to the bullish argument.

The long-term trend is still bearish, however, suggesting a risk of a recapitulation 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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