The NZD/USD currency pair updated its 9-month price low Monday, marking the 0.5891 level. For the first time since November of last year, the pair tested the 58-figure region. Such price dynamics are due, in part, to the decision of the Reserve Bank of New Zealand, which, last week, concluded its regular meeting, keeping the interest rate at 5.50%.
However, the dovish results of the August RBNZ meeting were largely predetermined, so they merely added to the existing fundamental picture. Overall, the NZD/USD pair has been within a downward trend for the sixth consecutive week. Therefore, today's price increase should be viewed exclusively as a correction that allows for selling at a more favorable price.
Since mid-July, the "kiwi" has fallen by almost 500 points. Several reasons can be highlighted for such price dynamics. More precisely, there are three. First, the RBNZ softened its stance in the second half of the year, shifting from an aggressive policy to a wait-and-see approach. Second, China recently disappointed with its macroeconomic reports. And third, the overall strengthening of the greenback has bolstered its positions against the backdrop of conflicting inflation data and improvements in the retail trade, industrial production, and labor market sectors.
Dovish Results of the RBNZ Meeting
Let's start with the August meeting of the Reserve Bank of New Zealand. It is worth noting that the mere fact of maintaining the status quo was not a sensation – most experts expected this scenario to play out. The reason is that, shortly before the August meeting of the RBNZ members, key inflation indicators were published, which essentially predetermined the outcome of the future meeting. Thus, New Zealand's Consumer Price Index in the second quarter fell to 6.0% year-on-year after rising to 6.7% in the first quarter. This is the weakest pace of growth for the indicator since the fourth quarter of 2021. In quarterly terms, the index also showed a downward trend, settling at 1.1% (the weakest growth rate since the first quarter of 2021).
Given these results and the preceding rhetoric of RBNZ members, almost no one doubted that the New Zealand regulator would maintain the rate at its current level, i.e., at 5.50%, in August. The intrigue remained regarding the future prospects of monetary policy tightening. Therefore, all attention was focused on the rhetoric of the Central Bank Governor, Adrian Orr, who voiced his position at the final press conference. This position turned out not to be in favor of the kiwi. Orr noted that inflationary pressure is weakening and raising the OCR level "is not a prospective target." Moreover, the head of the RBNZ reported that at the August meeting, the members of the central bank discussed the prospects of lowering the interest rate, but according to him, this discussion "was not very active, although a stable consensus was formed."
The published minutes of the meeting also did not please the buyers of NZD/USD. According to the text of the document, the current interest rate "restrains spending and, consequently, inflationary pressure." The Committee agreed that, in the foreseeable future, the OCR should remain at a restrictive (current) level.
In other words, the regulator indicated that it is prepared to maintain a wait-and-see stance further (there will be two more meetings this year—in October and November), especially in light of the declining inflation indicators.
Such conclusions disappointed NZD/USD buyers, so the downward trend continued.
China
The flow of disappointing news from China also puts pressure on the kiwi. At the end of July, it became known that China's GDP in the second quarter of this year grew by 6.3% year-on-year, while the consensus forecast assumed an increase of 7.3%. This is while strict quarantine restrictions were in place in several major Chinese cities in April–May of the previous year. But even taking into account the low base, the result for the second quarter of 2023 was one percent below the forecast. The unemployment rate among China's urban population in June was 5.2%, but according to Bloomberg, youth unemployment hit a record 21%. Other macroeconomic reports released in China in August also raise concerns. For example, it became known that China's exports and imports are falling much faster than expected, and industrial production is growing at a more modest pace (in July—3.7% with a growth forecast of 4.4%).
China is one of New Zealand's main trading partners, so these results weakened the kiwi's position.
Conclusions
The prevailing fundamental background contributes to the further decline of NZD/USD. From a technical perspective, on the D1, W1, MN timeframes, the pair is between the middle and lower lines of the Bollinger Bands indicator. On the weekly chart, the Ichimoku indicator formed a bearish "Parade of Lines" signal, indicating the priority of short positions. Corrective upward pullbacks should be viewed as an opportunity to go short—with the first, and so far the main target at 0.5870 (the lower line of the Bollinger Bands on the daily chart).
