NZD/USD: Head and shoulders points to more kiwi weakness

The NZD/USD price plunged for the fifth straight day as forex traders focused on the relatively strong US dollar and the relatively mixed New Zealand economic data. It fell to 0.6968, which was the lowest level since November last year.

Mixed New Zealand data

New Zealand handled the coronavirus pandemic better than most countries. Indeed, at just 25, its death tally was better than that of its peer countries.

However, recent numbers have cast doubts on how strong the country’s economy is. Last week, data by the Statistics agency showed that the economy contracted by 1.0% in the fourth quarter after rising by 13.9% in Q4. 7 of the 16 industries tracked declined, with the worst being construction and hospitality sector. In total, the economy contracted by 2.9% in 2020.

Today, data showed that New Zealand’s exports and imports declined in February. Imports declined by N$46 million to $4.3 billion mostly because of low crude oil imports. Exports, on the other hand, declined by N$416 million in February. The country exported fewer goods to all countries apart from China. These numbers have led many to fear that the country’s recovery is not as robust as what analysts were expecting.

The NZD/USD has also slumped because of the relatively low commodity prices. This week, most commodities, including copper and iron ore have slumped as investors fear about demand. While New Zealand does not produce a lot of commodities, its two biggest trading partners – China and Australia – do.

Meanwhile, the stronger US dollar has also dragged the kiwi. The dollar index has gained by 0.22% today as investors eye the bond market. It has gained against all currencies that comprise the index, including the euro and sterling. The index has gained by more than 1.10% in the past five days.

NZD/USD technical forecast

A look at the four-hour chart shows that the NZD/USD has been in a steep downward trend recently. In fact, it has fallen by more than 6% from its highest point this year. This week, it moved below the important support at 0.7100, which was the neckline of the massive head and shoulders pattern it had formed. It has also dropped below the 25-day and 15-day exponential moving averages (EMA). Therefore, the pair may continue falling as bears target the next key support at 0.6900.