NZD/USD. New Zealander depressed over coronavirus and RBNZ intentions

The New Zealand dollar "fell into a depression" following the August meeting of the National Central Bank, reacting to the rhetoric of its chairman. Also, the coronavirus factor affected the mood of investors: they did not manage to celebrate the 100-day "virus-free period" in New Zealand (there was not a single "non-imported" case of infection), as the Covid-19 outbreak was recorded in Auckland. This fundamental background has put significant pressure on the kiwi.


It should be noted that before the August meeting, NZD/USD traders were quite optimistic: the main macroeconomic indicators of New Zealand came in either in line with expectations or better than expectations, and coronavirus retreated in early summer. On June 8, the Ministry of Health said that all people diagnosed with COVID-19 in the country have recovered. After that, the country lifted all quarantine restrictions, except for strict border control. Therefore, the Reserve Bank's unexpectedly pessimistic attitude was an unpleasant surprise for NZD/USD traders. Members of the regulator voiced "dovish" rhetoric, putting pressure on the "kiwi".

First, the Central Bank increased its asset purchase program to 100 billion New Zealand dollars. Second, members of the New Zealand regulator said that they are ready to implement additional measures to stimulate the economy "in the event of activation of the virus and a longer continuation of restrictive measures". They were seriously concerned about information about new cases of the disease: according to the RBNZ, "the activation of the virus is a serious risk factor for the forecasts of the Central Bank". At the same time, the Central Bank again started talking about the introduction of a negative rate – the text of the accompanying statement indicates that such a measure may be the next step in the expansion of stimulus measures. At the same time, members of the New Zealand regulator admitted that the recovery of the country's economy (as well as the world economy) will be "very slow".

Here we need to tell you more about the situation with coronavirus in New Zealand. As mentioned above, there were no cases of domestic transmission in New Zealand until August 11. In three months, only 22 patients with coronavirus disease were found in the country — and all of them were visiting New Zealanders. That is, no one had COVID-19 among the local population. But on August 12, in the country's largest city, Auckland, the coronavirus was found in a 50-year-old man who did not travel abroad. COVID-19 and three members of his family, as well as six people who live in the same house with them, also became ill. How they got infected is still unknown. After that, the city of one and a half million people was put under the strictest level of quarantine: people were banned from leaving their homes (except for work, shopping, going to the pharmacy or playing sports) and schools, kindergartens and most businesses were closed.

But the lockdown did not help: yesterday at a press conference, the Prime Minister of New Zealand announced that the country has recorded 29 new cases of COVID-19 infection, and all of them are concentrated in one place, that is, in one of the districts of Auckland. It is still unclear where this virus outbreak originated, so the strict quarantine was extended until at least August 21. On the one hand, it may seem that the government is acting disproportionately – in the same States, tens of thousands of new cases are registered daily against the background of the phlegmatic reaction of the White House. But on the other hand, it is worth considering that New Zealand initially had one of the toughest quarantines in the world – according to Prime Minister Ardern, this is how we managed to completely overcome the coronavirus in the country. Therefore, it is not surprising that a seemingly meager increase of 30 cases resulted in stricter quarantine restrictions and the reaction of the New Zealand regulator.


In addition, the NZD/USD pair is under pressure from another fundamental factor. The fact is that the head of the RBNZ, Adrian Orr, was concerned about the high exchange rate of the New Zealand dollar. During his press conference, he said that "low rates and a low exchange rate of the national currency" will help to achieve stable inflation and full employment. It is worth noting that since the spring, the "kiwi" has risen in price to the dollar at first by 500, and then by 600 points. The growth of the NZD exchange rate caused a decrease in the profit of exporters, and, accordingly, the "righteous anger" of the regulator.

Thus, the fundamental picture for the "kiwi" leaves much to be desired, so a further decline in the price of NZD/USD is expected in the medium term. Bears did not manage to overcome the lower limit of the Bollinger Bands indicator on the daily chart last week, which corresponds to the level of 0.6540. With a high probability, next week, sellers will continue the southern path – at least to the upper border of the Kumo cloud on the same timeframe – to the level of 0.6500. The mark of 0.6380 looks like a more powerful support level – since the beginning of summer, bears have repeatedly tried to overcome this price barrier, but in vain. If you consider a longer-term time period, this target can be selected as the main goal.

The material has been provided by InstaForex Company -