FX.co ★ Blackpink | NZD/USD

NZD/USD continues its downtrend on Monday and is seen around 0.5770 at the time of writing, with a 0.72% daily decline. The New Zealand Dollar (NZD) faces downside pressure mostly due to a rising US Dollar (USD) after market participants began to bet on a possible Fed interest rate hike during its upcoming monetary policy meeting on Wednesday. US inflation figures released last week strengthened the market's expectation that the Fed would go for another monetary tightening move this week. As per CME FedWatch, the market sees about an 88% probability of a Fed interest rate hike in the current week by 25 basis points, compared to 59% a week ago. Fed meeting is thus expected to be the primary driver for the currency pair this week. Traders will pay close attention to the speech of the Fed Chairman, Kevin Warsh, at the end of the meeting for further clues regarding US monetary policy. A dovish comment on the course of US interest rates may add additional weight to USD. As far as the economic indicators from New Zealand are concerned, there are some positive signals from the economy as well. The BusinessNZ Performance of Services Index (PSI) increased to 51.2 points in August and reached its peak since September 2023 for the third month of growth in a row. Nevertheless, the recovery is still not stable, as according to the CEO of BusinessNZ, Katherine Rich, three out of five sub-indicators have still been staying below the 50 mark. Reserve Bank of New Zealand (RBNZ) continues to show caution following its recent 25-basis-point hike of the OCR to 2.75%. According to the RBNZ, the current interest rate level is accommodative and calls for a slow reduction of monetary stimulus. The balanced stance means that there will be no high expectations for the tightening cycle in New Zealand. Therefore, the difference in expectations concerning the Fed's monetary policy means that the USD/NZD pair is under selling pressure despite the upcoming meeting on Wednesday. According to the analysts at Brown Brothers Harriman, New Zealand's second-quarter activity numbers will highlight the sharp drop in momentum. "Expect New Zealand Q2 real GDP (Wednesday). Real GDP production based is forecast at 0.1% q/q (RBNZ forecast: 0%) versus 0.8% in Q1," is noted. According to Brown Brothers Harriman, the weaker-than-expected growth will be due to lower disposable income owing to higher fuel prices, rising uncertainty, and falling home prices in New Zealand. However, the bank also emphasises several reasons for expecting that the slowdown might turn out to be short-lived, arguing that "encouragingly, leading indicators suggest a recovery in Q3." In terms of policy, BBH draws attention to the RBNZ's recognition that "spare capacity is present in the economy, especially in the labour market," which somewhat contradicts market pricing. Namely, it is emphasised that "the swaps curve suggests that the policy rate will be at 4.25% over the next two years," while "RBNZ forecasts a peak of the policy rate (at present, 2.75%) at 3.25% in 2028," which is "still below the upper bound of its nominal neutral range estimates between 2.3% and 4.1%." This "leaves plenty of room for a dovish repricing," which is "a negative for NZD." According to the one-hour chart of NZD/USD, the currency pair is now trading at about 0.5771. It keeps moving down, breaking below the 100-period simple moving average (SMA), which stands at 0.5828, and the 200-period SMA, which is at 0.5848. Such behaviour adds a negative bias in the short term. Price moves towards the previously established horizontal support at 0.5760. Furthermore, the RSI (14) is down to about 24. It shows an oversold situation. In the topside direction, the first resistance level stands at 0.5793 while there is a barrier at 0.5802. Further, the 100-period simple moving average stands at 0.5828 and the 200-period simple moving average at 0.5848. These are all part of a bigger supply area that helps in limiting any upside movements and sustaining the bearish force. In the downside direction, the first level to watch out for is the horizontal support at 0.5760. A break of this level and its continuation will facilitate more downward movement. On the other hand, holding the price level above 0.5760 will create a corrective rally within the bearish setup.