The NZD to USD exchange rate has been in a strong bearish trend in recent weeks. This decline has occurred in line with the continued risk-off sentiment in the market alongside the continued tightening of the Fed. Officials have signaled that the bank will continue to raise rates this year in a bid to bring down soaring inflation.
The Fed’s further rate hike signal is getting clearer, after the US inflation data. These figures revealed that the country’s inflation is rising at a faster pace than expected. The headline CPI rose by 8.3% in August, while the core CPI jumped by 6.3%.
The NZDUSD pair fell after the Q2 current account data from New Zealand. The figures show that the current account rose by more than N$5.22 billion in the second quarter. The current account as a percentage of GDP was -7.7%, worse than the expected -7.40%. The latest major catalyst was the New Zealand GDP data earlier today. The forecast was for the economy to expand by 1.0% in Q2 on an annualized basis and 0.2% on a quarterly basis. The actual data was significantly better with the Annualized number coming in at 1.7% and the quarterly figure registering a 0.4% lift.
This has added to the market optimism that the economy will continue to bounce back further into positive territory. The trade balance surplus was largely in the second quarter, although business confidence was depressed before switching back to deficit in June, while Q2 labor costs nearly doubled from the previous quarter, as the unemployment rate remained at a record low.
The lifting of travel restrictions in May brought some economic relief, which may be more evident in the release of Q3 GDP. The strong Q2 figures today, however, will come significantly into play when the RBNZ meets on 5 October to set policy.
Technical Analysis
NZDUSD continued its weakness for the 5th week and broke through the 0.6060 support structure for the second time. The bias remains to the downside, with chances to test 0.5950 support, the May 2020 low. The move remains below the 26-day EMA average with oscillations to the sell side. However, a move above the resistance at 0.6160 will confuse the outlook. Broadly speaking, the bears’ dominance does not seem to be running out of steam, as long as the price moves below the median line.
In the H1 period, Wednesday’s trading looked quiet and only moved between 0.5975 and 0.6024. A move above 0.6024 could test 0.6060 while a move below 0.5975 support would only confirm a continuation of the bearish trend.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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