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

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.

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. 

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

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.