The New Zealand dollar is falling against the US dollar due to fears that the recent rate hike from the RBNZ will add further headwinds to economic growth over the coming weeks and also over US debt fears.
It was the 12th straight rate hike, in line with market consensus, as consumer inflation, at 6.7% in Q1 of 2023, remained too high with many measures of inflation expectations staying elevated.
Meantime, employment indicators continued to be on an upward path, and high net immigration also added to demand in the economy. This week’s move brought a total of 525bps increases since October 2021.
The RBNZ said it now sees borrowing costs peaking at the current level, with cuts beginning in Q3 of 2024. It noted a GDP contraction of 0.6% in Q4 of 2022 was unexpected while a mild recession is projected for Q2 and Q3 of 2023.
The board was also aware that demand is slowing in parts of the economy that are most sensitive to high-interest rates, like housing. But the rebuilding work after recent floods should provide a small offset to the fall.
Since the rate decision the NZDUSD pair has continued to tumble, and according to sentiment metrics we could see more heavy losses ahead for the New Zealand dollar.
According to the ActivTrader market sentiment tool some 86 percent of traders are bullish towards the NZDUSD pair. As we typically look to fade sentiment biases, this could mean the NZDUSD pair is set to reverse lower.
It is worth mentioning that high levels of bullish sentiment suggest a classic contrarian sentiment trade is still in the making, so do be careful buying this pair at current level, especially since the recent rejection from the 0.6300 area.
NZDUSD Short-Term Technical Analysis
The four-hour time frame shows that a bearish bias is play as the NZDUSD pair has repeatedly struggled to move higher and has now sunk under the lower end of its price range.
Currently, the downside looks good, especially since the pair broke under a large rising expanding wedge pattern after falling below the 0.6150 support level.
NZDUSD Medium-Term Technical Analysis
The daily time frame shows that the pair looks to be bearish as it trades below its trend defining 200-day moving average, just above the 0.6150 price level.
According to technical analysis we could see more downside as the overall price trend is now bearish. The former low around the 0.6070 area is also an important support zone to watch.