New Zealand Dollar Rally Fizzles
MarketPulse | May 24, 2022 07:13AM ET
The New Zealand dollar reversed directions after a solid 3-day rally. In the European session, NZD/USD was trading at 0.6432, down 0.55% on the day.h2 China jitters weigh on NZ dollar/h2
New Zealand’s number one trading partner is China, and it’s no exaggeration to say that when China sneezes, New Zealand catches a cold. China has tenaciously implemented a zero-tolerance policy for COVID, which has meant lockdowns that have confined millions of residents.
Unsurprisingly, this has dampened growth in the world’s number two economy. The COVID restrictions were in full force in April, and UBS has projected that China’s economy plunged by 8.0% in Q2 and has downgraded China’s 2022 GDP to 3.0%, down sharply from 4.2%.
Investors should not assume that China’s economy will re-energize once the COVID restrictions are eased—UBS is warning that China does not have a clear exit strategy from its current stringent COVID policy, which will hamper a recovery.
The downgrade in China’s GDP (JP Morgan also lowered its forecast from 4.3% to 3.7%) has soured sentiment towards the New Zealand dollar.
Over in New Zealand, retail sales for Q1 came to a screeching halt. The headline figure declined by 0.5%, down from 8.3% in Q4 2020, while core retail sales came in at zero, down from 6.8%. The weak numbers have contributed to today’s New Zealand dollar’s descent.
The Reserve Bank of New Zealand will be in the spotlight on Wednesday when it holds a policy meeting. The central bank is expected to raise rates by 50-bps for a second straight month.
This would bring the cash rate to 2.0%, which is considered a “neutral” stance. It’s noteworthy that the cash rate hasn’t been at the neutral level since 2015, so the RBNZ is moving into rarified air.
The RBNZ will likely continue its rate-tightening cycle to 3.0% in order to curb spiraling inflation, and at tomorrow’s meeting, the Bank will likely state that more hikes are on the way.
NZD/USD Technical
- NZD/USD has support at 0.6352 and 0.6287
- There is resistance at 0.6475 and 0.6540
Original Post
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.