NEW ZEALAND DOLLAR BOUNCES OFF 50-DAY MOVING AVERAGE

The New Zealand Dollar bounces on Thursday after finding a floor at the key 50-day SMA.

The Kiwi recovers after three days of losses and despite a worsening macro backdrop – normally a negative for NZD. 

NZD/USD remains in a long-term downtrend, with US labor data and commentary from Fed’s Powell as potential near-term influences. 

The New Zealand Dollar (NZD) recovers against the US Dollar (USD) on Thursday, despite a worsening macro picture after bouncing off technical support at the important 50-day Simple Moving Average (SMA). The 50-day SMA is used as a key guide to investing by institutional investors, such as pension fund managers, and retail traders alike. 

Daily digest market movers: New Zealand Dollar strengthens after meeting key average

The New Zealand Dollar trades higher against the US Dollar on Thursday despite the USD strengthening against most counterparts as reflected by the rise in the US Dollar Index (DXY). 

Downbeat Chinese inflation data continues to dampen the outlook for global growth. This would normally weigh on NZD, as it is a major commodity exporter – especially of dairy products – to China. However, the currency ignores the data and rises anyway.

The Kiwi’s unilateral strength is probably as a result of the NZD/USD reaching a significant chart level, the 50-day SMA, and then bouncing. 

The Chinese CPI unexpectedly declined by0.2% October compared with the same month a year earlier, versus the 0.0% in the previous month. Experts had expected a 0.1% fall. 

Deflation in China suggests signs the economy is cooling. Normally this would have a negative knock-on effect on the Kiwi. New Zealand is a major exporter to China, meeting most of its needs for dairy products, and deflation could reflect a decline in demand. 

The Kiwi itself weakened on the back of an inflation report from the RBNZ on Wednesday. The report showed both one-year-out and two-years-out inflation expectations for New Zealand fell in Q3 compared to the previous quarter.

Actual inflation in New Zealand, as reported by Stats NZ, also showed a drop in inflation to 5.6% in Q3 versus the 6.0% of the previous quarter. 

The lower inflation expectations imply the RBNZ is less likely to raise interest rates. Since higher interest rates tend to strengthen a currency by increasing capital inflows from foreign investors searching for higher returns, the lower data weighed on the Kiwi. 

The widespread market view is that the US Federal Reserve (Fed) is now unlikely to raise interest rates further. However, recent commentary from Fed officials has suggested some still see the need for more interest rate hikes, muddying the picture. 

With the Fed Funds Rate currently at 5.25%-5.50%, there is little incentive for traders to borrow in either NZD or USD and invest in the other, an operation known as the “carry trade”, that is a major contributor to fluctuating global FX demand.

US labor data at 13:30 GMT and a speech from Federal Reserve Chair Jerome Powell scheduled for 19:00 GMT could impact the NZD/USD, on Thursday. 

New Zealand Dollar technical analysis: NZD/USD bounces of 50-day SMA

NZD/USD – the number of US Dollars one New Zealand Dollar can buy – bounces off the key 50-day SMA and rises 0.35% at the time of writing on Thursday, to trade at 0.5929. 

At the same level as the 50-day sits the 0.382 Fibonacci retracement of the rally from off the late October year-