The New Zealand Dollar (NZD) faced downside pressure in the early Asian session on Wednesday as the Reserve Bank of New Zealand (RBNZ) decided to cut the Official Cash Rate (OCR) by 50 basis points (bps) to 4.75%. This move was widely anticipated and led to an immediate reaction in the forex market, with the Kiwi losing momentum to near its lowest level since mid-August. The decision was taken with the aim of achieving and maintaining low and stable inflation while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate, as stated in the RBNZ Monetary Policy Statement (MPS). The NZD also faced selling pressure due to disappointing news from Chinese officials, as China is a major trading partner to New Zealand.
Next on the radar is the release of the Federal Open Market Committee (FOMC) Minutes later on Wednesday, which may provide insight into the future monetary policy stance of the US Federal Reserve. The focus will then shift to the US Consumer Price Index (CPI) data for September on Thursday, which could influence the USD and impact the NZD/USD pair. If the CPI report shows a softer-than-expected outcome, it might weigh on the USD and help limit the pair’s losses. Traders will closely monitor these developments to gauge the potential direction of the NZD in the near term.
In terms of technical analysis, the NZD/USD pair continues its downtrend as it crosses below the key 100-day Exponential Moving Average (EMA) and is poised to break below the ascending trend channel on the daily chart. The 14-day Relative Strength Index (RSI) stands below the midline, near 41.10, supporting the sellers in the near term. A decisive break below the lower limit of the trend channel could pave the way towards the psychological level of 0.6000. On the upside, the 100-day EMA at 0.6142 acts as an immediate resistance level, followed by further resistance levels at 0.6254 and 0.6300.
The New Zealand Dollar (NZD), also known as the Kiwi, is influenced by various factors such as the health of the New Zealand economy, central bank policy, Chinese economy performance, and dairy prices. The RBNZ aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, using interest rates as a tool to control inflation. Economic data releases in New Zealand play a crucial role in assessing the state of the economy and can impact the valuation of the NZD. Furthermore, the NZD tends to strengthen during risk-on periods and weaken during market turbulence or economic uncertainty.
Overall, the New Zealand Dollar remains under pressure following the RBNZ rate decision, with focus shifting to upcoming economic data releases and the FOMC Minutes. Traders will closely monitor these developments to gauge the direction of the NZD/USD pair in the near term. Technical analysis suggests a continuation of the downside bias for the NZD, with key resistance and support levels to watch. The unique characteristics of the NZD, including its correlation with the Chinese economy and dairy prices, make it an interesting currency to trade for investors seeking exposure to commodity currencies.
