NZD/USD falls as risks of negative interest rates in New Zealand remain

Written by: Crispus Nyaga
October 20, 2020
  • The NZD/USD price declined slightly as the market continued to focus on negative rates.
  • The RBNZ has said that it could push rates negative to boost inflation.
  • A report by NZIER showed that business confidence improved in the third quarter.

The NZD/USD price is down by 0.35% even after positive economic numbers from New Zealand. The price is also reacting mildly to last week’s election. It is trading at 0.6580, which is slightly higher than the intraday low of 0.6567.

NZD/USD declines even as business confidence improves

New Zealand business confidence rises

The New Zealand dollar is reacting to news that business leaders are getting more optimistic about the economy. According to the New Zealand Institute of Economic Research (NZIER), business confidence in the third quarter improved from -63% to -40%.

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The institute noted that a net 1% of all companies in the country reported robust trading activity as the government continues to implement its unprecedented stimulus package. As a result, most firms have continued to hire and invest for their growth. Indeed, the hiring has led to labour shortages in some industries.

By sector, construction is the most confident, with a net 7% of construction firms expected to improve in the next few months. This is partly because the government has boosted its spending budget in response to the pandemic.

On the other hand, the services sector is the most pessimistic because of the challenges facing the tourism and hospitality industries. While New Zealand has not reported any Covid cases recently, the government has continued to be cautious about its borders and arrivals. Manufacturers are less pessimistic.

Meanwhile, the NZD/USD price is also reacting to the weekend’s election in which the incumbent, Jacinda Arden, won by a landslide. Her party also won parliament by landslide, meaning that policy will remain unchanged.

At the same time, the pair is reacting to the recent commitment by the central bank that it was serious about negative rates. In a statement last week, Assistant Governor, Christian Hawkesby, said that the bank was seriously considering moving to negative rates for the first time on record. These rates would reduce the cost of borrowing for individuals and businesses. However, they would be bad for banks and savers.

NZD/USD technical outlook

NZD/USD technical chart

The NZD/USD price is trading at 0.6580, which is below the 25-day and 15-day exponential moving averages. The price has also moved above the lower line of the Donchian channel. For starters, the Donchian is an indicator that maps the highest and lowest levels of an asset in a certain period.

The price is also slightly above the important resistance shown in pink. This resistance connects the lowest levels in September and October. Therefore, for today, the pair is likely to continue rising as bulls aim for the middle Donchian level at 0.6620. Start your trading journey with our free forex courses.