- US Dollar benefits from upbeat Manufacturing and Services PMIs for April.
- Fed’s Harker signals the end of rate hikes, but Mester suggests higher rates are needed.
- NZD/USD Price Analysis: Bearish biased and can test YTD lows if it dives below 0.6084.
The NZD/USD fell to six-week lows around 0.6126 as business activity in the United States (US) improved, triggering flows toward the American Dollar (USD). Therefore, the New Zealand Dollar (NZD) weakened, also undermined by lower inflation, as reported during the week. At the time of writing, the NZD/USD is trading at 0.6140, down more than 1%.
USD gains on positive PMIs, mixed signals from Fed officials; NZD/USD at risk of testing YTD lows
US equities fluctuated between gains and losses after S&P Global revealed an expansion in the US economy, bolstering the US Dollar (USD). S&P Global Manufacturing and Services PMIs for April exceed estimates above the 50 level, which usually delineates expansion/contraction in the economy. Therefore, the Composite PMI edged higher, at 53.5, above the prior reading of 52.3.
Federal Reserve officials hawkish rhetoric weighed in the NZD/USD for the third time in the week. Although the Philadelphia Fed President Patrick Harker signaled that the Fed is about to finish hiking rates, his colleague Cleveland’s Fed President Loretta Mester noted that rates should go above 5%, due to high inflationary pressures.
Given the lack of economic data from New Zealand, which reported inflation and was lower than the Reserve Bank of New Zealand (RBNZ) estimates of 1.8% QoQ, at 1.2%, could spark a pause on the RBNZ tightening cycle. The RBNZ delivered a hawkish 50 bps hike at its latest meeting.
Ahead of the week, the US economic docket will feature Fed Governor Lisa Cook as traders prepare for the weekend.
NZD/USD Technical Analysis
After hitting a weekly high of 0.6379, the NZD/USD formed an inverted hammer in the daily chart, suggesting that the major could be headed down. Indeed, the NZD/USD dropped below the 50 and 20-day Exponential Moving Averages (EMAs), each at 0.6289 and 0.6227, respectively. The Relative Strength Index (RSI) turned bearish while the Rate of Change (RoC) indicated that sellers were gathering momentum. Hence, the NZD/USD path of least resistance is downwards. The first support would be the 0.6100 figure, followed by March’s low of 0.6084, before testing the YTD low at 0.5912.
What to watch?
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The NZD/USD is currently experiencing a significant plunge in its value, reaching a 6-week low. On Monday, this currency pair suffered a drop of more than 1%, to the US dollar’s benefit.
This bearish move comes on the back of news that the US economy is continuing to improve and business activity is growing. This, in turn, has lowered investor demand for the New Zealand dollar as they look to shift investments out of the country.
The US economy continues to perform better than expected, printing figures that are considerably stronger than predicted throughout December. Meanwhile, New Zealand’s economy has been affected by tighter fiscal policy, which has weighed on the country’s overall growth.
A weakened New Zealand dollar is positive for exporters, allowing them to increase their competitiveness within the global market. However, it is expected to cause further problems for the country’s central bank, which had already been facing inflationary pressures from higher fuel prices and a depreciating currency.
The New Zealand dollar has weakened against all of its G10 counterparts this week; the USD/CAD being its largest loser, dropping 0.24%. It is believed that the current exchange rate represents an excellent opportunity for forex traders to make trades in the market.
In conclusion, the NZD/USD has decreased more than 1% and dropped to a 6-week low in response to the improved US business activity. This has caused investors to flee the New Zealand dollar in favour of the US dollar, and it is expected that the NZD/USD will remain weak in the coming weeks.
