The New Zealand dollar will be in the spotlight as the country’s central bank delivers its interest rate decision. The NZD/USD exchange rate tumbled to a low of 0.5817, its lowest level since November 2023, and 8.13% below the highest point this year.
Reserve Bank of New Zealand decision
The NZD/USD exchange rate will be in focus this week as the RBNZ makes the closely watched interest rate decision on Wednesday.
Economists polled by Reuters anticipate the bank to cut rates by 0.50%, which will bring the benchmark lending rate to 4.25%. It will be the third consecutive interest rate cut, which will make the RBNZ one of the most dovish central banks in the developed world.
The bank’s decision to cut rates is mostly because the economy is not doing well and the fact that it has achieved its inflation target. The headline Consumer Price Index (CPI) dropped to 2.2% in the third quarter from 3.3% in the previous one. This figure has dropped from the 2022 high of 7.7%.
Data released on Monday showed that New Zealand’s retail sales dropped by 0.1% in Q3 compared to the same period last year. Core retail sales, which excludes the volatile goods and energy products, fell by 0.8% after dropping by 1.0% in the same period.
New Zealand remained in a trade deficit in October as it exported goods worth $5.7 billion while importing $7.3 billion. Therefore, the RBNZ will cut interest rates as it hopes to stimulate the economy.
The NZD/USD exchange rate has also retreated as investors brace for more disruption between the US and New Zealand in the incoming Trump administration. The two countries do trade valued at over $13.4 billion a year, with imports and exports being largely the same.
US dollar index has jumped
The NZD/USD pair has also slumped as the US dollar index (DXY) has jumped and formed a golden cross pattern on the daily chart. This pattern forms when the 50-day and 200-day Exponential Moving Averages (EMA) cross each other.
In most periods, a golden cross is one of the most bullish signs in the market, implying that the DXY index may continue rising in the near term.
The DXY has jumped after signs emerged that the Federal Reserve will not be all that dovish following the strong inflation data. Recent data showed that the headline Consumer Price Index (CPI) rose from 2.4% in September to 2.6% in October.
It has also jumped after Trump’s election led to a rotation to safe havens like the US dollar. Looking ahead, the key catalysts for the pair will be the US GDP and PCE data and minutes of the last meeting.
NZD/USD technical analysis
NZD/USD chart by TradingView
The daily chart shows that the NZD to USD exchange rate has been in a strong sell-off in the past few months. This plunge started after the pair jumped to a high of 0.6378 in September.
It has now formed a death cross chart pattern, a highly popular bearish sign. The pair also moved below the psychological level at 0.5900.
On the positive side, it has formed a small morning star candlestick, while the two lines of the MACD indicator are about to form a bullish reversal. The Relative Strength Index (RSI) has also pointed upwards.
Therefore, the NZD/USD pair will likely have a brief comeback ahead or after the RBNZ interest rate decision. It will then resume the downtrend and retest the support at 0.5700 in the near term.
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