NZD/USD: Here’s why the New Zealand dollar is under intense pressure

NZD/USD: Here’s why the New Zealand dollar is under intense pressure
Written by:
Crispus Nyaga
21st August, 04:49
  • The NZD/USD pair has been under pressure after reaching a high of 0.6717 in July.
  • The country is battling a new wave of the coronavirus illness, months after it eradicated the disease.
  • Data released today showed that credit card spending was relatively weak in July.

The NZD/USD pair is under pressure as the number of coronavirus cases start to rise again. It is also reacting to the weak credit card spending data. The pair is trading at 0.6536, which is still below this year’s high of 0.6715.

NZD/USD
NZD/USD under pressure

New Zealand credit card spending

Credit card spending in New Zealand rose by 1.8% to $3.8 billion in June from July as the country continued to reopen. On a year-on-year basis, the spending declined by 5.8% after falling by 9.4% in the previous month.

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In the same month, billings on domestically-issued cards increased by 3.6% while overseas billings on New Zealand-issued cards fell by 7.6% to $210 million.

These numbers came a week after the central bank released the electronic card retail sales. In July, these retail sales rose by 11.4% on an annualised basis from the previous increase of 8.0%. On a month-on-month basis, the sales rose by 1.1%, down from the previous gain of 15.6%.

Other data from New Zealand have been mixed. For example, visitor arrivals increased by 65.6% in July while the PPI input declined by 1.0% in the second quarter.

Meanwhile, last week, the Reserve Bank of New Zealand (RBNZ)released its interest rate decision. In it, the bank left interest rates unchanged but warned that some sectors like tourism will take a longer time to recover.

New Zealand coronavirus cases rise

The NZD/USD pair is also reacting to the emergence of coronavirus cases in New Zealand. Last week. The country confirmed one case with the disease after 100 days without a case. Since then, the country has confirmed more than 35 new cases. And there is a possibility that the country will confirm more cases in the near term.

As a result of the new cases, New Zealand’s government has moved swiftly to announce new containment measures. These include rapid testing and more contact tracing. It has also put Auckland, the capital city, in a lockdown.

Therefore, traders are concerned that the new wave of the virus will interfere with New Zealand’s growth. Worse, Australia, the country’s most important trading partner, is also battling its second wave.

NZD/USD technical outlook

NZD/USD
NZD/USD technical chart

The NZD/USD pair had been in a steep downward trend before the coronavirus pandemic. In March, the currency dropped to a multi-year low of 0.5484, which was a significant drop from the previous 0.6756. Since then, the pair has bounced back and reached a high of 0.6715. The recent rally was mostly because of the weaker US dollar and the hope that the New Zealand economy will recover.

However, the NZD/USD pair seems to have topped, as evidenced by the green rectangle. It has also dropped in seven of the past eleven days. The price remains above the 50-day and 100-day exponential moving averages while its volatility is at its lowest level since March.

Therefore, I suspect that the kiwi will be under intense pressure in the near term. As such, there is a possibility that it will move to the 61.8% retracement level at 0.6270. On the flip side, a move above the previous high of 0.6756 will invalidate this prediction.

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