NZD/USD Likely to Break the Support Below 0.61 As the Bounce Fails
NZD/USD has been making lower highs since the end of December, which indicates that sellers remain in total control. It formed a support zone below 0.61 last week and tried to bounce off that zone after some positive news from China which improved risk sentiment, but moving averages continue to act as resistance and this week the price is likely to break below the support zone.
Early last week this forex pair dipped below the support zone as the USD resumed the bullish momentum from the previous week, but the price reversed higher after the CPI (Consumer Price Index) inflation report from New Zealand. It was anticipated that the Q4 inflation report would display a significant reduction in Q4, falling to 0.5% from 1.9% in Q3 which it did, while the annualized inflation fell to 4.7%.
However, the ‘Non-tradeable’ CPI YoY, which can be affected by the Reserve Bank of New Zealand policy, has climbed to 5.9% and +1.1% quarter on quarter, above the forecast of 0.8%. This, together with the announcement by the Chinese central bank announced of a 50 bps reduction of the RRR rate helped improve market sentiment and send commodity dollars higher.
NZD/USD increased around 90 pips by the middle of last week, only to meet the 50 SMA and start reversing lower again, The decline in the second half of the week has been slow, but markets are awaiting the FOMC decision on Wednesday, so traders will take it easy until then. Last night we saw the trade balance from New Zealand, with the deficit expected to fall from below 1 billion NZD this time.
December Trade Balance Report From New Zealand
- December Trade balance YoY -13.57M vs -13.90M
- December Trade balance MoM -323M vs -1,250M
- Exports 5.95B vs 5.99B expected
- Imports 6.26b vs 7.20B
The trade deficit fell drastically, although the Imports fell for the month, which might indicate either deteriorating domestic demand or a drop in consumer confidence. The Reserve Bank of New Zealand’s expectations for rate reduction this year are firming, which may lead to an earlier rate decrease than previously predicted.
NZD/USD Live Chart
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