NZD/USD Price Forecast: Trades firmly near three-month high of 0.5820
- NZD/USD holds onto gains near 0.5820 amid strength in the New Zealand Dollar.
- China’s monetary stimulus package has uplifted the NZD’s appeal.
- The Fed is almost certain to leave interest rates in their current range on Wednesday.
The NZD/USD pair holds significant Monday’s gains near 0.5820 in European trading hours on Tuesday. The Kiwi pair exhibits strength as the appeal of the New Zealand Dollar (NZD) has strengthened after China announced fresh monetary stimulus to boost consumption to uplift economic growth.
On Sunday, the Chinese ministry announced a comprehensive “special action plan” to ramp up economic growth. The ministry reported that the plan focuses on increasing residents’ incomes, reducing financial burdens, and enhancing the consumption environment, Reuters report.
Signs of acceleration in China’s economic growth bodes well for the New Zealand Dollar, knowing that the New Zealand (NZ) economy depends heavily on exports to China.
Meanwhile, the US Dollar (USD) drops to near the five-month low ahead of the Federal Reserve’s (Fed) interest rate decision on Wednesday. The Fed is widely anticipated to keep interest rates steady in the range of 4.25%-4.50% as officials have been guiding that monetary policy adjustments are unfavorable amid uncertainty over the United States (US) economic outlook under the leadership of President Donald Trump.
NZD/USD breaks strongly above the key resistance of 0.5800 plotted from the January 24 high. The asset holds above the 20-day Exponential Moving Average (EMA) near 0.5720, suggesting that the near-term trend is bullish.
The 14-day Relative Strength Index (RSI) breaks above 60.00. A fresh bullish momentum would trigger if the RSI holds above that level.
More upside would appear if the asset breaks the 38.2% Fibonacci retracement of 0.5850 plotted from the September 30 high to February 3 low towards the round-level resistance of 0.5900 and the November 29 high of 0.5930.
On the flip side, The Kiwi pair could decline to near round-level supports of 0.5400 and 0.5300 if it breaks below the 13-year low of 0.5470.
NZD/USD daily chart
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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