May 22, 2020
NZD/USD Rate Wobbles Ahead of New Zealand Retail Sales Report.
New Zealand Dollar (NZD) Talking points:
NZD/USD attempts to backtrack the decline following the Reserve Bank of New Zealand (RBNZ) meeting, but the exchange rate may still reverse the gains from the April low of 0.5843 amid the failed plan to push above the previous support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion).
NZD/USD Rate Wobbles Ahead of New Zealand Retail Sales Report.
NZD/USD rebounded back from a fresh monthly low of 0.5921 before New Zealand’s 1Q Retail Sales report, but the report may produce a bearish reaction within the exchange rate as the private sector consumption is predicted to contract 1.5% following the 0.7% expansion during the last quarter of 2019.
In reply, the RBNZ may take more steps to support the economy as the central bank expands its Large Scale Asset Purchase (LSAP) program in May to 60 billion NZD from 33 billion NZD, and Governor Adrian Orr and Company may retain a dovish attitude at a subsequent meeting on the 24th of June as the Monetary Policy Committee is preparing to use further monetary policy tools if and when required, including reducing the OCR (official cash rate) further.
The steady process to restart the New Zealand economy may force the RBNZ to use more unconventional tools as members acknowledge that a ‘least regrets’ monetary policy approach is required, and it seems that the central bank will remain aggressive in combating the economic fallout from the Coronavirus as officials insist that there are policy tools available that haven’t yet been used.
However, the RBNZ seems to be in no hurry to implement a negative interest rate policy (NIRP) as Governor Orr and Company continue to argue that further OCR reductions at this point wouldn’t be effective, and it remains to be seen if the central bank will implement more non-standard measures over the next few months as members agree that the key thing needed to support the economy is fiscal stimulus.
In addition, the RBNZ may regress to a more wait-and-see standpoint after increasing the LSAP program, but belief for a NIRP in New Zealand may still pull on NZD/USD especially as the Federal Reserve Chairman Jerome Powell talks down the risk of negative US interest rates.
With that said, NZD/USD may still reverse the gains from the April low (0.5843) amid the failed plan to push above the previous support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion).
NZD/USD Daily Rate Chart.
Chart data as of the 18/05/20 from https://www.tradingview.com
- Keep in mind, NZD/USD has not retained the range from the last 6 months of 2019 as the fall from earlier this year produced a break of the October low of 0.6204, with a pattern forming in March as the 50-Day simple moving average (SMA) of 0.5996 crossed below the 200-Day SMA of 0.6324.
- The negative slope in both the 50-Day SMA and therefore the 200-Day SMA offers a bearish outlook for NZD/USD, and therefore the advance from the yearly low of 0.5469 appears to have faltered before the previous support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion) as both price and therefore the Relative Strength Index (RSI) breaks the bullish patterns from March.
- NZD/USD continues the decline from earlier this month following the failed plan to test the April high of 0.6176, with the break close below the 0.6000 (100% expansion) to 0.6010 (161.8% expansion) region bringing the 0.5880 (100% expansion) area into the picture.
- It needs a break of the April low of 0.5843 to open up the Fibonacci overlap around 0.5740 (78.6% retracement) to 0.5790 (61.8% retracement), with the subsequent area of interest coming in around 0.5640 (261.8% expansion).
James Stewart
Fundamental Analyst for Global Markets
James has over 20 years of experience trading FX, cryptocurrencies and investments products for a range of investment banks and brokers
He spent the last 10 years analyzing and writing about foreign exchange, crypto-currencies and the global financial markets
He has also spoken at a range of conferences around the globe on various financial topics.
