NZD/USD Bears Test Key Support Amid Weak Inflation Data
Market Overview
On Thursday, the New Zealand dollar struggled near its lowest level since August 19, weighed down by stronger U.S. dollar demand and mild inflation data. The U.S. dollar remains favored by investors, driven by robust economic fundamentals, while softer inflation from New Zealand has increased the odds for more dovish policy measures by the Reserve Bank of New Zealand (RBNZ).
Additionally, geopolitical concerns and investors’ attention on developments regarding housing policy stimulus in China—a key trading partner for New Zealand—may significantly impact the demand for the New Zealand dollar. These uncertainties have added additional downside pressure on the kiwi, with a cautious sentiment prevailing in the market.
Technical Analysis
In the two-hour chart, NZD/USD is trading within a downward-sloping channel, indicating ongoing weakness in buying interest and a preference for further declines. Price action is currently moving within the lower half of the Bollinger Bands, reflecting continued pressure from sellers. Multiple attempts to break below the critical support at 0.60535 have so far been unsuccessful. If sellers succeed in breaking this level, it would confirm a continuation of the prevailing downtrend.
Assuming a break below the key support at 0.60535, the next downside targets are at 0.60384, 0.60297, 0.60157, and ultimately 0.60070. These levels represent successive support points where sellers may face difficulty pushing the price lower. Momentum indicators are also aligned with this bearish scenario. The Relative Strength Index (RSI) is at 37.76, indicating ongoing selling pressure, although it has not yet reached the oversold territory. This suggests that there may be further room for the price to fall before buyers potentially step in. Meanwhile, the MACD indicator is in negative territory, confirming the bearish sentiment. Although no clear divergence between price and MACD is evident, the downward momentum appears steady.
Additionally, moving averages are providing dynamic resistance to the price action, with the 20-period and 50-period averages trending downwards, reinforcing the bearish channel.
Alternative Scenario
If buyers manage to regain control and push the price above the 0.60751 resistance level, it would indicate a shift in momentum. In this scenario, the upper band of the descending channel and the moving averages will be closely watched as potential resistance levels. A breakout above the channel could signal the start of a short-term recovery.
Key Levels Overview
Resistance Levels:
- Resistance 1: 0.60751
Current Price: 0.60516
Support Levels:
- Support 1: 0.60384
- Support 2: 0.60297
- Support 3: 0.60157
- Support 4: 0.60070
Key Events to Watch
As the annual inflation rate in New Zealand dropped to 2.2% in the third quarter, down from 3.3% in the previous quarter, it marked the first time in over three years that inflation fell within the RBNZ’s target range of 1-3%. This substantial cooling of inflation has heightened expectations for a significant rate cut by the central bank in its final meeting of the year in November. This expectation of a dovish stance is one of the primary drivers for the kiwi’s weakness. Furthermore, as New Zealand’s largest trading partner, any positive news on China’s stimulus could have a direct impact on the demand for the New Zealand dollar.
U.S. Initial Jobless Claims, Retail Sales figures due on Thursday, and any comments from Federal Reserve officials will also be in focus. Strong data from the U.S. could continue to support the U.S. dollar, adding further downside pressure on the NZD/USD pair.
Conclusion
The NZD/USD pair remains under significant selling pressure, with bears attempting to push the price through key support levels. The pair’s movement within a downward channel and consistent pressure on support at 0.60535 suggests the likelihood of further declines, with targets at 0.60384 and below. If the broader market conditions or central bank stances become more supportive of risk assets, the New Zealand dollar could see a relief rally. However, for now, the balance remains tilted towards the sellers, with caution being the watchword as inflation concerns and geopolitical factors dominate market sentiment.