New Zealand Dollar retreats on lingering China property concerns



Share:

  • The New Zealand Dollar corrects back after the big gains made midweek.
  • The Kiwi retreats as China property bubble woes persist despite positive economic data and the pledge of a government bailout. 
  • NZD/USD almost touches the key October highs at 0.6055 before retreating, though the uptrend is still in play. 

The New Zealand Dollar (NZD) pares the strong gains made midweek as the European session gets underway on Thursday. The NZD retreats on negative sentiment: the Hang Seng index closed 1.41% lower at the end of the Asian session, due to lingering concerns about China’s vulnerable property sector. 

As New Zealand’s largest trading partner, bad news for China is usually bad for New Zealand too, and the Kiwi fell from the 0.6050s to trade back in the 0.5990s at the time of publication.  

Daily digest market movers: China property woes spoil market cheer

  • The New Zealand Dollar weakens on Thursday as concerns about the state of China’s property sector spoil the positive Retail Sales and Industrial Production data released on Wednesday, according to a report by Reuters. 
  • This comes after data showed a slowdown in Fixed Asset Investment in China, an umbrella term encompassing property. 
  • Fixed Asset Investment showed a 2.9% rise in October – below the 3.1% forecast by experts (YoY YTD in October) and the 3.1% previous, data from the National Bureau of Statistics of China showed on Wednesday. 
  • Despite concerns, the Chinese government has purportedly pledged 1 trillion Yuan in low-cost financing for the property sector, according to a report from Bloomberg News.
  • New Zealand is a major exporter of dairy products to China, so China newsflow impacts expected demand for the Kiwi.
  • Overall lower inflation data from the US, UK, and Europe lessened global growth fears, aiding the Kiwi’s comeback midweek. 
  • The US Dollar fell steeply after inflation data suggested a greater chance of the Federal Reserve not raising interest rates. Lower interest rates makes the US a less attractive place for global investors to park their capital, reducing demand for the USD. 

New Zealand Dollar technical analysis: NZD/USD meets resistance and pulls back

NZD/USD – the number of US Dollars one New Zealand Dollar can buy – pulls back after coming within a hair’s breadth of touching the 0.6055 October high. 

New Zealand Dollar vs US Dollar: Daily Chart

The break above 0.6001 confirms the short-term bullish trend, biasing longs.  

The zone around the October high (0.6050-0.6055) has been touched multiple times this year and this makes it an important support and resistance level. As a result of its heightened significance, if it is eventually broken it will yield a more volatile push higher.

A decisive break above the 0.6055 October high would change the outlook to bullish on the medium term as well, indicating the possibility of the birth of a new uptrend. Such a move would then target the 200-day Simple Moving Average (SMA) at around 0.6100.

As things stand, the medium and long-term trends are both still bearish, however, suggesting the potential for more downside remains strong. 

New Zealand Dollar vs US Dollar: 4-Hour Chart

There are signs the current pullback could extend a little lower. The 4-hour chart shows the MACD line crossing below the signal line (circled) whilst both are well above the zero-line – a bearish signal. 

This could indicate a deeper correction, perhaps to 0.5950. Despite this the short-term trend is still overall bullish so the uptrend should eventually resume. This holds true as long as the November 14 lows at 0.5863 hold. 

A possible bullish inverse head and shoulders pattern may have formed at the lows. This is highlighted by the labels applied to the 4-hour chart above. The L and R stand for the left and right shoulders, whilst H for the head. If so it could indicate substantial upside to come if the neckline – at the October highs – is decisively breached. 

A decisive break would be one accompanied by a long green candle or three green candles in a row.

 

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.



Source link