Published: June 22nd, 2022
The Kiwi could be vulnerable through the rest of this week’s session according to New Zealand investment bank ANZ.
In its weekly FX market note, analysts at the bank said the key driver for NZD will continue to be global investor confidence, leaving it at risk of further declines, especially against the greenback. Pitted against other G10 majors like Sterling, the near-term outlook is more nuanced.
'The New Zealand Dollar and risk appetite in general have both had a wobbly start to the week. Oil prices and central bank interest rate expectations have both subsided, however the swings we’ve seen in US rates and NZD price action this week is being pushed along by a hesitant offshore vibe.'
Global markets have struggled against a backdrop of higher energy prices and central bank interest rates, especially at the world's most influential central bank, the US Federal Reserve.
The Fed has kicked off a series of bigger than expected rate hikes, raising the cost of borrowing both in America and elsewhere, while also taking liquidity out of the worldwide financial system.
This puts the growth-sensitive New Zealand Dollar at risk of underperformance. ANZ analysts say their technical analysis pegs support for NZD/USD at around 0.6100 and then 0.5940. Resistance, they say, should appear at around 0.6393 and then 0.6572.
Against Sterling, the Kiwi is expected to maintain a tight range, which could minimise the risk of big swings in either direction for traders keeping a close eye on the pair over the coming days.
This is due to both sides of the Pound to New Zealand Dollar exchange rate being susceptible to US dollar moves, says ANZ, suggesting that NZD/USD and GBP/USD would both see similar moves given that the Dollar dominates global forex markets.
'That effectively nullifies any significant moves on GBP/NZD,’ says ANZ. ‘On our chart the impact of USD cancels out any big moves on the cross, with no obvious opportunity yet for a breakout.’
For NZD/GBP, ANZ sees support around 0.4869, 0.4979 and 0.5049. Resistance lives at 0.5229 and then 0.5344. For GBP/NZD that translates into support at 1.9119 and 1.86. Resistance then appears at 1.97, 2.00 and 2.0533.
NZD’s prospects against the Australian Dollar (AUD) however look more compelling.
‘NZD/AUD has begun a rally towards 0.90, the level it broke beneath on the way down. Australia’s economy appears to be on a stronger growth trajectory than New Zealand’s, and that speaks to NZD weakness. Still, it doesn't seem that markets are trading on those indicators so we may be seeing a shorting trend behind a consensus trade behind the recent rally. We need to observe price action for the next few days to be sure.’
Support for the pair can be found at 0.8855 and 0.8951, ANZ says, with resistance at 0.9186 and then 0.9302.
Against the Euro, ANZ believes the New Zealand Dollar will be more or less ‘stable around 0.61’.
‘The European Central Bank’s new anti-fragmentation tool will free it to raise rates without restraint, which should turn out to be highly positive for the Euro.’
Support for the pair will be found at 0.5756 and then 0.5909, with resistance expected at 0.6259/0.6414.
For forex traders building positions on the Euro to New Zealand Dollar equation, ANZ believes resistance will be found at 1.6919 and 1.7377. Support will materialise at 1.5589 and 1.5973.
The Kiwi has been holding its own among the G10 majors in the first half of the year, rallying past a new technical milestone in April any sparking a chorus of analyst comment suggesting further gains in 2022 were possible. Even then, however, some believed a downside correction was also on the horizon.
Even at its Spring peak, NZD trailed its commodity-currency cousins the like Australian dollar and Norwegian Krone, but then kicked off a rally that challenged two levels of technical chart resistance.
On 28th April, NZD/USD overturned more than half its decline from July 2021 after breaking through the 0.6921 level and reaching a fifty per cent Fibonacci retracement. It then surpassed another technical milestone by beating 0.6956.
In a note to investors, Australian lender Westpac wrote that the Kiwi’s next target would be 0.7000 against the US Dollar. ‘As commodity prices continue to rise, support for NZD will continue, possibly culminating in 0.7100-plus by July.’
The New Zealand Dollar had already shown strong performance before US exchange rates dropped lower and gave it a push against the Greenback, Westpac added. Gains in agricultural commodity prices also added some tailwind.
‘The next moves for NZD will depend on macro factors, however higher commodity prices and higher bond yields will remain as core NZD supports.’
At the start of the year, the Reserve Bank of New Zealand’s (RBNZ) said it expected to raise interest rate beyond what had been mooted publicly in 2021 as a response to domestic inflation pressures. That changed economic consensus and many forecasts for the country’s official cash rate rose accordingly.
Some New Zealand analysts, however, were more reserved about the country's growth prospects and said at the time that the US Dollar could rise further in the near term.
ANZ’s currency strategy unit published a research note that described NZD’s outlook for the remainder of 2022 as ‘somewhat clouded.’ This was based on factors including higher-than-expected interest rates, lower-than-expected housing starts, and unpredictable commodity prices.
‘Inflation is rising, and the indications are that we will see much higher real rates by mid-year. That includes the USA, where inflation is rampant. Based on previous periods where these factors dominated markets, it could be that the long USD rally may have some life in it yet’.
ANZ said parallels with earlier periods could indicative of where the Kiwi is headed given its outperformance at the time. NZD has often been sensitive to shifts in US bond yields driven by changes to Fed monetary policy.