NZD/USD: What's Next For The Kiwi?
NZD/USD hit a new two-year low last week despite some encouraging signs that New Zealand’s economy is starting to improve.
New Zealand’s economy expanded by 1.7% in the second quarter, compared to a 0.2% contraction in the three months prior. Furthermore, GDP grew 0.40% on an annualized basis. Although down on the previous 1.2% print, was still above analysts’ forecasts.
The GDP beat follows the Reserve Bank of New Zealand’s (RBNZ) rate hike last month, the seventh-consecutive increase. The central bank has delivered four back-to-back 50 bp raises, lifting the Official Cash rate (OCR) to 3.00%.
The slight improvement in economic growth and New Zealand’s low unemployment rate of 3.3% has thus far failed to lift the Kiwi against the greenback. As it stands, the NZ dollar has depreciated by almost 12% against its US counterpart this year. Furthermore, this week, the Federal reserve is expected to deliver the latest in a long line of super-sized rate hikes.
On September 21, the Federal Open Market Committee (FOMC) is forecast to lift interest rates by 75 basis points to 3.25%. If the Fed deliver 75 bp’s as expected, it will mark the third-consecutive hike of that magnitude. Moreover, some analysts forecast the Fed may even surprise with a 100 bp hike. In that event, NZD/USD could weaken considerably. However, the rate has reached a significant long-term support level that may limit the downside — that is of course, unless the Fed take the nuclear option.
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US Dollar to NZ Dollar Forecast
The weekly price chart shows that NZD/USD is approaching the support of the may 2020 low at $0.5930. Notably, the level proved a springboard two years back, eventually sending the Kiwi to three-year high of $0.7464 against the dollar. Whilst, we don’t expect to see similar price action now, the support could alleviate some of the immediate pressure on NZD/USD. However, to register more gains, the Fed must deliver a dovish surprise, which in our view is unlikely.
For that reason, NZD/USD is likely to soon breach the support. In that event, the market looks to the March 2020 lows around $0.5470 as a potential longer-term target. The bearish view is valid as long as NZD/USD is below the horizontal resistance around $0.6200. A weekly close above this marker, improves the technical outlook to bullish.
NZD/USD Price Chart
