Market Analysis – NZDUSD
The New Zealand Dollar is showing active gains against the US Dollar in today’s Asian trading, building on the weak “bullish” momentum it had formed the day before during the early stages of the European session. The pair adds about 0.50% and is about to test the level of 0.7100 for a breakout.
In addition to the weak positions on the US Dollar, the decision of the Reserve Bank of New Zealand on the interest rate provides moderate support to NZD. As expected, the regulator did not change the parameters of monetary policy, maintaining the key interest rate at 0.25%. In the follow-up statement, the Central Bank’s Monetary Policy Committee noted the continued uncertainty in the global economy amid strong epidemiological risks and existing restrictions on tourism and supply. At the same time, the regulator is very optimistic and its current forecasts for the development of economic activity in the country are not inferior to the February estimates.
Besides the positive reaction and change of sentiment amongst investors towards the New Zealand Dollar, the exchange rate is still heavily influenced by the movement of the US Dollar. Investors are focused on the publication of March data on inflation in the USA, the growth of which turned out to be higher than expected. The core consumer price index altered from 0.1% to 0.3% MoM and from 1.3% to 1.6% YoY. The CPI increased from 0.4% to 0.6% MoM, and from 1.7% to 2.6% YoY. Thus, inflation is growing faster than expected, mainly due to the increase in gasoline prices, but investors are interested in how far and how long it will last. The longer the CPI remains at or above the 2.0% target, the more difficult it will be for the US Fed to maintain loose monetary policy.
Regardless of the positive economical data, mainly in inflation related figures, the US Dollar currently continues to decline while the Treasury Bond market struggles and the Federal Reserve remains reluctant to increase interest rates. Investors also fear the inflation figures still contain risk of tapering, or in other words reaching their maximum potential and likely to decline in the future.
So far, the regulator expects to begin a cycle of rate increases no earlier than 2024, but the market hopes that the economic situation will force it to act faster. Traders should note the central bank has not confirmed any such intentions, but the market is following speeches and conferences closely to monitor whether the Chairman and Monetary Policy Committee is likely to amend their stance or give a hint of change to the cameras. We should also note that the US Food and Drug Administration (FDA) has recommended suspending the use of the Johnson & Johnson coronavirus vaccine due to the fact that it is possibly causing rare blood clotting problems. This decision could negatively affect the rate of vaccination of the population in the USA, since special hopes were pinned on it due to its single use inoculation.
The dollar is weakening today, against all its major competitors including the Euro, Pound and Yen. The US Dollar index is declining slightly this morning for the third consecutive trading day. When looking at the New Zealand Dollar we are seeing largely positive movements. The currency has increased by 51 pips against the Yen, 81 pips against the Canadian Dollar and even showing gains of almost 80 pips against the Euro which is showing positive movement on the EURX. Traders are able to use the below significant prices to assist in their analysis.
Resistance levels: 0.7100, 0.7150, 0.7200, 0.7250.
Support levels: 0.7050, 0.7000, 0.6954, 0.6913.