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Balancing the abyss: New Zealand dollar is on the verge of falling


According to most analysts, the currency of New Zealand shows a downward trend. The current state of the market forms a "bearish" trend in relation to the "kiwi", which cannot but worry investors.

The situation was largely influenced by the decision of the Reserve Bank of New Zealand (RBNZ) to reduce the rate immediately by 50 basis points (bp), to 1%. The regulator explained the sharp decrease in the rate by the aggravation of the trade conflict between the US and China, as well as the loss of momentum in the New Zealand economy. The RBNZ believes that the current wage growth remains weak. At the same time, inflationary expectations are reduced, and low levels of business confidence indicate a slowdown in wage growth and low employment.

The New Zealand economy, which is predominantly export-oriented, is very vulnerable in the context of the escalation of the trade confrontation between Washington and Beijing. Many participants in international financial markets have expressed concern that a slowdown in economic growth and the threat of recession will spread throughout the world. Analysts believe that in the next few months, the global cycle of lower rates will gain momentum.

In this situation, we should expect further easing of the monetary policy of the RBNZ, analysts warn. Most economists believe that before the end of this year, the regulator can lower the interest rate at least twice. According to experts, such a measure will negatively affect the rate of the New Zealand dollar.

The next meeting of the Reserve Bank of New Zealand, dedicated to monetary policy issues, is scheduled for September 24, 2019. Until this time, the Kiwi and the NZD/USD pair will remain under pressure, analysts are certain. They believe that the short-term dynamics of NZD/USD will be determined by both the state of the US currency and economic events in the Asia-Pacific region, including news about the trade conflict between the United States and China.

At the moment, the NZD/USD pair is trading near the mark and the local support level of 0.6430, which is the low since October 2018. The high probability of a further reduction in the RBNZ rate puts pressure on NZD/USD towards its decrease, forming a steady "bearish" trend. A breakdown of the local support level of 0.6430 could cause a further drop in the NZD/USD pair, analysts warn. They recommend that traders observe short positions in the kiwi.

Further growth of the NZD/USD pair is unlikely if the Fed does not begin a cycle of aggressive reduction in interest rates due to instability in the financial markets. In the medium term, the New Zealand currency expects a bearish trend, analysts say.

The material has been provided by InstaForex Company -