NZD / USD: New Zealander is also waiting for the G20

In October, the New Zealand dollar, paired with its American counterpart, pushed off from multi-year price lows and recovered more than 400 points in just a month. Moreover, the Kiwi has the potential for further growth, at least to the 70th figure. To assess the likelihood of such a scenario, you should consider the reasons for the fall in prices.

The black line for the NZD/USD pair began with the recently appointed head of the Reserve Bank of New Zealand, Adrian Orr, surprised traders with too soft a position. First, he shifted the estimated period for possible monetary tightening from 2019 to 2020, and second, made a rate reduction if inflation showed weak growth.

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The market was clearly not ready for such a turn of events, after which the New Zealand currency began to plummet. The situation was also aggravated by another escalation of the trade war between the United States and China, as well as a decrease in demand for dairy products, which in turn, a fall in the price of "milk". In addition, the US currency significantly strengthened its position in October as the dollar index rose from 94 to 97 points in a month, reflecting the next greenback rally. Such a black and white fundamental background exerted strong pressure on NZD/USD, which is why the pair dropped to 2016 lows. But then the situation has changed quite dramatically, which is primarily due to the positive dynamics of national macro-statistics.

Thus, the unemployment rate unexpectedly dropped to a ten-year low (3.9%) and the last time the indicator at such lows was in the summer of 2008. The number of employees increased by 1.1% QoQ with a forecast of 0.5% and by 2.8% in annual terms with a forecast of 2%. The share of the economically active population increased to 71.1% in a maximum of two years) and the level of under-utilization of the labor force dropped to 11.3%. Impressive figures provoked strong volatility in the NZD/USD pair, especially since the dollar was also experiencing hard times. The outcome of the congressional elections weakened the greenback across the entire market. This combination of fundamental factors helped the Kiwi bulls to unfold the southern trend. At first, the pair showed corrective growth, and then a very stable northern trend. A month ago the price was trading in the area of the 64th figure.

This is because the New Zealand economy has shown growth not only in the labor market. Credit card spending, as well as the service sector and inflation indicators, show a positive trend. In particular, consumer prices in the third quarter in the country rose immediately by 1.9% (year on year) after rising 1.5% in the second quarter while most experts expect a more modest result of 1.7%. This suggests that one of the key indicators for the RBNZ is gradually approaching its target level.

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The changed dynamics of the main economic indicators allows traders to rely on the tightening of the rhetoric of the New Zealand regulator and recently, the position of the RBNZ is indeed becoming if not a "hawk" but more optimistic. In particular, the head of the New Zealand Central Bank Adrian Orr said that today the risks to the financial system of the country have weakened over the past six months although "certain vulnerabilities remain.

In addition, the regulator, although minimal, brought the approximate date of the rate increase in early November closer from the third quarter of 2020 to the second quarter of the same year. The Central Bank also predicted the acceleration of the country's GDP growth in the following year and also stated that employment is close to the "maximum sustainable level

Although the optimism of the Central Bank and traders is associated with long-term prospects, the New Zealander feels support for the fundamental background, and in any "opportunity" during periods of a weaker dollar, it strengthens its position. Recently, the growth of the pair has been cautious, primarily due to the decline in the oil market and fuel prices make up one third of the consumer index growth but the northern trend still has not lost its relevance, despite a significant price pullback last week.

At the moment, the majority depends on the outcome of the G-20 summit, which will take place at the end of this week. Its results will either strengthen or weaken the position of the US dollar across the market. On the other hand, in case that the NZD/USD bulls will not miss the opportunity to seize the initiative in order to bring the price to the key resistance level of 0.7000. .

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From a technical point of view, the bulls of the pair need to overcome the Tenkan-sen line on the daily chart, which corresponds to the mark of 0.6815. In this case, the Ichimoku Kinko Hyo indicator will generate a "Golden Cross" signal, warning of a further northward jerk. It is likely that such a scenario will be implemented as early as next week, if the G20 results are not in favor of the US currency.

The material has been provided by InstaForex Company - www.instaforex.com