Market Analysis – NZDUSD
The NZDUSD is showing strong bullish price movement this morning during the Asian session. The bullish movement has continued during the opening of the European Session as the daily candlestick already measures the highest volatility for the month of May. So far, the price movement measures over 80 pips and approximately a 1.13% increase. The movement comes after the Central Bank’s Monetary Policy statement and after the US Dollar depreciates to new price lows over the past two trading days.
Today’s speech by the New Zealand Central Bank has proved that simple comments made by the regulators can cause significant price movements in the exchange rate, even if the monetary policy has not physically changed. The Central Bank left the national interest rate at the all time low as widely expected on Wednesday, but projected a rate hike by September next year, sending the regional currency to a three month high. The Reserve Bank of New Zealand sees at least one 25 basis point rate hike to 0.5%by September 2022, and projected the official cash rate would reach 1.5% by the end of 2023, underscoring expectations that a string of recent positive data will lead policymakers to tighten rates sooner rather than later. It is important for traders to notice that these are solely predictions and may change month-to-month. For this reason, it is important to note today’s hawkish tone, but at the same time to ensure the tone does not change going forward.
Additional support for the instrument is still provided by the data published this week on the dynamics of retail sales in New Zealand for the first quarter of 2021. Excluding the automobiles, sales grew by a record 6.8% QoQ, well ahead of market expectations of 1.9% QoQ. Overall, retail sales rose 2.5% QoQ over the same period, although in the previous quarter there was a solid 2.7% QoQ decline in the indicator.
Investors are also focused on the new comments of the US Federal Reserve officials. Yesterday, the head of the Kansas City FRB, Esther George, noted that the signal of high inflation “cannot be ignored”. It is necessary to closely monitor the situation in the economy, since the huge volume of incentives passing through it can create a situation that is significantly different from what the regulator is currently counting on. Ms. George did not call for an immediate correction in monetary policy, but her words were interpreted by the market as a sign of hesitation in the regulator’s leadership. Earlier, most officials said that the current rise in inflation is a temporary phenomenon and it is too early to raise rates.
The market should also note that yesterday, the creation of a coalition of representatives of 28 industry groups of American business was announced. Its purpose will be to oppose the intention of the administration of President Joe Biden to raise taxes. Coalition members argue that raising corporate and other taxes will put pressure on the US economy, which is just starting to recover from its crisis. In the past, political tension as such can cause strain on exchange rates going forward.
Looking at each currency individually we can see that today, the US dollar is weakening against seeing mixed price movements depending on the currency pair. When looking at the US Dollar Currency Index we can see that the index has shown some bearish movement this morning, but has currently corrected back up to the market open price, however, generally speaking the Dollar remains low. Looking at the New Zealand Dollar we can see the currency has increased against all competitors since the release of the Central Bank. Even looking at the price movement before today’s announcement, the currency has been appreciating significantly during the first two days of the week.
Support levels: 0.7151, 0.7209
Resistance levels: 0.7464