Home Forex Market Analysis NZDUSD Forecast: Bearish Run Here to Stay

NZDUSD Forecast: Bearish Run Here to Stay

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NZDUSD Forecast: Bearish Run Here to Stay
  • The Reserve Bank of New Zealand has held its interest rates unchanged despite sentiments on tightening the monetary policy being hawkish.
  • The spreading Delta variant has influenced the opinions of investors on the NZD/USD pair.
  • The market is still speculating about when the Fed will begin tapering.

The New Zealand dollar lost more ground today, losing 0.99% in 24 hours to trade at $0.6816 at 0504 EDT. The sentiments of investors regarding the NZD/USD pair have been influenced by rising numbers of Covid-19 cases as well as the geopolitical tensions in Afghanistan. These factors have also suppressed the price action of the USD.

Inflation in New Zealand and the United States economy

The Reserve Bank of New Zealand (RBNZ) yesterday startled markets by retaining its interest rates. The interest rates were held at 0.25%. However, the predictions and policy statements taken into consideration in the monetary policy statement remain hawkish.

The hiking of the rates is expected by the end of the year. The sentiments by the Reserve Bank of New Zealand have increased the vulnerability of NZD in the short run to extrinsic headwinds. However, if the monetary policy is tightened, it will embolden the NZD and set it on a path to recovery.

On the other hand, the USD is holding at the major level of 93 on the DXY index. From the minutes of the Federal Open Market Committee (FOMC) meeting that was held last month, it has been verified that members are concerned about when and not if the Fed will begin tapering.

A recent observation is that the Fed policymakers are discontented with FOMC minutes job recovery figures. This has resuscitated talks of an impending tapering to support the safe-haven demand for the USD. It will be important to follow the headlines on the Covid-19 pandemic, given the lack of main events or data for a new direction of USD.

Additionally, investors are still concerned about the possible decline in the US economic growth due to the rapid spread of the Covid-19 Delta variant. This element is currently the strongest headwind for the observed riskier New Zealand dollar.

Investors are also likely to keep their eyes on tapering signals from the Fed ahead of the FOMC’s next meeting in September. This will influence the price dynamics of USD and give a new directional momentum to the New Zealand dollar against the United States dollar.

The effects of Covid-19 Delta variant on NZD and USD

The Covid-19 Delta variant is rapidly increasing at unexpected rates. The United States leads in the number of virus deaths and cases.

The decline in the value of the NZDUSD pair is mainly due to the lockdown measures imposed by the government to contain the spread of the virus. With this restriction in place, authorities in the country will have the opportunity to enhance contact tracing and vaccine administration.

The rise in Covid-19 in New Zealand and the recent lockdowns contributed to the decision of the Reserve Bank of New Zealand to hold its interest rates at 0.25%. This may affect a slight recovery of NZD against the United States Dollar.

Technical outlook

The NZD/USD pair is currently below its 20-SMA and 50-SMA. The bearish trend looks likely to continue, considered that the 20-SMA is below the 50-SMA. The pair is also below the 38.2% Fibonacci retracement, and a breakout seems far-fetched.

NZDUSD daily chart, showing SMAs, Fibonacci retracement, and broken support.

The price was at 0.68164 at the time of writing, and the continuation of the bearish control will likely see it slide further to find support at 0.6717. Upward mobility is likely to find the first resistance at 0.6918 and the second one at 0.7021.

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