New Zealand dollar tumbles

The New Zealand dollar is down sharply today. In the European session, NZD/USD is trading at 0.5676, down 0.85%.

New Zealand dollar can’t find its footing

It has been a tumultuous week in the currency markets, and the New Zealand dollar is about to record a losing week for a seventh straight time. This week was book-ended by sharp losses, and NZD/USD fell as low as 0.5565, its lowest level since March 2020, at the start of the Covid pandemic.

Why no love for the New Zealand dollar? The risk-sensitive currency has been pummelled as risk apprehension has soared, particularly over the escalation of the war in Ukraine. Earlier this week, the Nord Stream pipelines were rocked by explosions, and Russian President Putin is poised to annex four Ukrainian regions which are partially occupied by Russian forces. With this dizzying pace of ominous developments, it’s no surprise that risk appetite is hard to find.

Another factor weighing on the kiwi is the continued aggressive stance of the Federal Reserve. Inflation in the US has eased slightly, but the Fed is in no mood to let up on tightening until it is certain that inflation has peaked and is moving lower. The Fed has been delivering a steady diet of 0.75% rate hikes, and this could continue in November and December. US Treasury yields have been on an upswing, propelling the US dollar higher against most of the major currencies as rate differentials continue to widen.

The Reserve Bank of New Zealand holds a meeting on October 5^th and Governor Orr hinted on Thursday that the rate cycle could be coming to a close. The benchmark rate is quite high at 3.0% and the RBNZ could deliver a small hike of 0.25% or even take a pause, as it appears to be nearing the terminal rate.

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NZD/USD Technical

• NZD/USD has support at 0.5649 and 0.5554
• There is resistance at 0.5826 and 0.5921

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