NZD/USD: Here’s why the New Zealand dollar could soon drop to 1.71

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on Mar 19, 2021
  • The NZD/USD price has been under pressure recently.
  • The strong US dollar as bond yields rise has contributed.
  • The market is also concerned about the recent weak New Zealand GDP data.

The NZD/USD price is under pressure mostly because of the relatively strong US dollar and the weak New Zealand GDP data. It is trading at 0.7160, which is 1.50% below the intraday high of 1.7240.

NZD/USD
NZD/USD chart

Stronger US dollar

The US dollar has risen against most developed-world country currencies like the euro, sterling, and the Australian dollar. The closely-watched dollar index has risen to $91.95 from this week’s low of $91.25. 

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The stronger US dollar comes two days after the Federal Reserve concluded its two-day monetary policy meeting. It left the interest rate unchanged between 0% and 0.25% and pledged to continue with its massive quantitative easing policy. It also upgraded its outlook for the US economy because of the ongoing vaccine rollout and the $1.9 trillion stimulus package. 

While the Fed’s outlook was dovish, the market believes that conditions will push it to change its mind later this year. This is evidenced by the 5-year break-even rate, which has risen to the highest level since 2008. Also, bond yields surged, with the benchmark 10-year yield rising to 1.7% for the first time in more than a year.

The NZD/USD is also under pressure as investors reflect on the rising risks of a double-dip recession in New Zealand. Data by the country’s statistics agency said that the economy declined by 1.0% in the fourth quarter after rising by 13.9% in Q3. This performance led to an annualised contraction of 0.9%, worse than the expected 0.5%.

This performance was mostly because of the weak performance of the country’s services industry. Tourism is reeling from a lack of foreign visitors. Similarly, the restaurant and hotel businesses are also suffering because of the pandemic. Still, economists expect that the economy will bounce back this year. 

NZD/USD technical forecast

NZD/USD
NZD/USD technical chart

The NZD/USD pair rose to a year-to-date high of 0.7465 in February this year. Since then, it has dropped by more than 4%. On the four-hour chart, the price is slightly below the important resistance level at 0.7245, where it found a strong resistance in January and February. It has also moved below the 25-day exponential moving average

Therefore, the pair may continue falling as bears target the important support at 0.7100. On the flip side, a rise to 0.7200 will invalidate this prediction. You can practice this price action in a free forex demo account.

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