The New Zealand Dollar (NZD), a prominent currency in investment circles, is currently navigating a challenging landscape. On Thursday, the NZD/USD pair showed a slight increase after hitting a fresh two-year low of 0.5570 during the North American session. However, it remains down by a quarter-to-a-percent, reflecting the ongoing bearish sentiment surrounding the currency. The current scenario is influenced by various factors, including China's economic performance, investor sentiment, and key economic indicators.
China, New Zealand's largest trading partner, plays a pivotal role in the Kiwi's performance. The Chinese economy's health often dictates the direction of the NZD. When China thrives, so does the NZD, as demand for New Zealand's exports, especially dairy products, surges. Conversely, as China's inflation slowed in December, the NZD faced selling pressure. This economic interdependence underscores the Kiwi's vulnerability to external shocks from its Asian counterpart.
In periods of market confidence, the NZD tends to strengthen. Investors are drawn to higher-risk assets like the NZD when they perceive broader market risks as low and are optimistic about growth prospects. However, during times of economic uncertainty or market turbulence, the NZD weakens as investors retreat to safe havens. This flight to safety is evident in the current market environment, with the NZD facing downward pressure due to global uncertainties.
The Reserve Bank of New Zealand (RBNZ) plays a crucial role in managing the country's economic stability. Committed to maintaining an inflation rate between 1% and 3%, with a focus on keeping it near the 2% midpoint, the RBNZ adjusts monetary policies accordingly. When inflation rises excessively, the RBNZ may increase interest rates to cool the economy. This move not only curtails inflation but also enhances bond yields, making New Zealand more attractive to investors and potentially boosting the NZD.
Macroeconomic data releases are critical in assessing the state of New Zealand's economy and influencing the NZD's valuation. The performance of the dairy industry, New Zealand's main export sector, significantly impacts the currency. Any fluctuations in dairy prices or export volumes can lead to corresponding movements in the NZD.
Globally, attention is also on the US Nonfarm Payrolls (NFP) data for December. Expectations are set for a workforce addition of 154,000 jobs, a decrease from November's 227,000. Such data releases can indirectly impact the NZD/USD pair by influencing US dollar strength and investor sentiment.
Technically, the outlook for the Kiwi remains bearish. The 20-week Exponential Moving Average (EMA) is on a downward trend, indicating sustained selling pressure. Additionally, the 14-week Relative Strength Index (RSI) hovers near 30.00, suggesting strong bearish momentum. These technical indicators align with broader market sentiments that suggest potential further declines for the NZD.
Should economic data continue to disappoint, the NZD could face additional depreciation. A break below the psychological support level of 0.5500 could propel it toward near historical lows of 0.5470 and further to round-level support at 0.5400. Such scenarios highlight the precarious position of the NZD in current markets.