NZD/USD Price Analysis: On the cusp of Falling Channel breakout

July 5, 2024 11:47 am

  • NZD/USD strengthens at the US Dollar’s cost.
  • Investors await the US NFP that will influence Fed rate-cut bets.
  • The RBNZ is expected to keep its OCR unchanged at 5.5%.

The NZD/USD pair rises above the round-level resistance of 0.6100 in Friday’s European session. The Kiwi asset extends its winning spree for the fourth trading session on Friday. The major strengthens as the US Dollar (USD) has faced severe pressure due to weak United States (US) ISM Services PMI and the ADP Employment Change for June, which boosts expectations for Federal Reserve (Fed) to begin reducing interest rates from the September meeting.

Next major trigger that will influence market speculation for Fed rate cuts in September will be the US Nonfarm Payrolls (NFP) data for June, which will be published at 12:30 GMT. Economists expect that US employers hired 190K new workers, which were lower than 272K payrolls added in May. The Unemployment Rate is expected to remain steady at 4%.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has dropped to near 105.00.

On the Kiwi front, investors await the Reserve Bank of New Zealand’s (RBNZ) interest rate decision, which will be announced on Wednesday. The RBNZ is expected to keep its Official Cash Rate steady at 5.5%. Therefore, investors majorly focus on the interest rate outlook.

NZD/USD is on the cusp of delivering a breakout of the Falling Channel formation on a four-hour timeframe. A breakout in the above-mentioned chart formation results in a bullish reversal.

A bull cross, represented by 20-and 50-day Exponential Moving Averages (EMAs) near 0.6100, suggests that the overall trend has become bullish.

The 14-period Relative Strength Index (RSI) shifts into the bullish range of 60.00-80.00, suggesting that momentum has been shifts on the upside.

Fresh upside would appear if the asset breaks above July 3 high at 0.6130 for targets near May 28 high around 0.6170 and June 12 high of 0.6222.

However, a breakdown below April 4 high around 0.6050 would expose the asset to the psychological support of 0.6000.

NZD/USD four-hour 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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