NZD/USD tumbles as New Zealand plans to ease coronavirus lockdown

The NZD/USD pair fell by 50 basis points even as New Zealand prepared to exit the current lockdown. The pair’s decline was mostly because of the overall strength of the US dollar.

New Zealand to end lockdown

In a statement to NewstalkZB, Deputy Prime Minister Winston Peters said that the government was preparing to exit the current lockdown in the coming week. He said:

“Unless there is an adverse finding in the next few days, some of the evidence looks rather compelling towards that.”

The statement came a day after Prime Minister Jacinda Arden announced that she was taking a 20 per cent pay cut. She also said that most businesses would be able to return to operations on condition that they continue observing social distancing. This means that offices will need to increase spaces between workers.

The statement also came a week after the Washington Post praised the country’s response to the coronavirus crisis. In a report, the Post said that the country’s strict lockdown measures were squashing the disease.

The data supports this statement. The country of more than 5 million inhabitants has reported less than 1,500 infections and just nine deaths. Half of those infected by the disease have recovered. More so, the number of daily infections has been falling, according to data from Worldometer.

Still, analysts say that reopening the economy without a vaccine or therapy risks increasing the number of infections. For example, the number of coronavirus-related deaths in Spain rose after the country eased its restrictions.

New Zealand economy hit

The coronavirus pandemic has greatly affected the New Zealand economy. According to the country’s Treasury, the unemployment rate could jump to 13 per cent this year. The latest data showed that the rate was at 4.0 per cent. The department modelling showed that the rate would jump to more than 26 per cent of the lockdown remained for six months. Other reports by ASB Bank and Bank of New Zealand (BNZ) forecast the unemployment rate jumping to 8 per cent and 9 per cent respectively.

These would be the worst unemployment rate in history and worse than the 2009 peak of 8 per cent. Meanwhile, the economy is expected to shrink by  9 per cent in the first two quarters of the year, according to Infometrics. Bank of New Zealand expects a 5 per cent contraction in the second quarter alone.

The government and the central bank have reacted swiftly to cushion the economy. Last month, the government launched an N$60 billion stimulus package to help companies and individuals. According to Bloomberg, this spending would increase the country’s debt to GDP ratio to expand from less than 20 per cent to almost 50 per cent. In her statement yesterday, Arden said that the government had given out more than N$9 billion to more than 1.5 million people in wage subsidies.

The RBNZ has also intervened. The bank brought interest rates to the lowest level in history and launched a $17 billion quantitative easing program.

NZD/USD outlook

The NZD/USD pair has been on an upward trend after bottoming at 0.5470 on March 19. The pair found some resistance at the 0.6125 level and has now declined to 0.5940. The latter is slightly below the 50 per cent Fibonacci Retracement level. Therefore, there is a possibility that the pair will continue falling to retest the 38.2 per cent retracement level at 0.5840. The double EMA crossover and the trend of the RSI show that this is possible.