The New Zealand dollar has taken a pause on Friday, after an impressive climb of 1.1% on Thursday. NZD/USD broke above the 0.7100 level in today’s Asian session and is currently trading at 0.7092.
With the US dollar continuing to lose ground, the cyclical currencies have been the notable performers. The New Zealand dollar racked up gains of 6.1% in November and has added another 1.0% in December. The currency hasn’t been at these lofty levels since April 2018, and there are strong indicators that the kiwi’s rally will continue. First, the fast-moving pace of Covid vaccine approval and expected distribution has bolstered risk tolerance, which is bearish for the safe-haven US dollar. Second, the US Congress appears close to reaching a deal on a massive fiscal stimulus package, and the huge influx of funds into the economy would likely cause the dollar to lose ground.
New Zealand has managed to keep a tight lid on Covid, and recent data indicates that the economy is headed in the right direction. Retail sales rebounded in Q3 with a strong gain of 28.0%, surpassing the consensus estimate of 20.0%. The manufacturing sector appears on solid footing, based on this week’s releases. Manufacturing Sales climbed 10.0% in Q3, while BusinessNZ Manufacturing Index improved to 55.3 in November, which was well into expansionary territory.
The Reserve Bank of New Zealand is no doubt pleased with the pace of recovery of the economy, but the bank is watching with concern the sharp appreciation of the New Zealand dollar – the currency has soared 15.6% since April 1st. A sharp increase in the value of the kiwi makes New Zealand exports more expensive, at a time that the vital export sector needs a pick-me-up in what has been a rough year due to the Covid pandemic. If the New Zealand dollar continues to climb, the exchange rate will be high on the agenda of policymakers at the RBNZ, who will be looking to curb the enthusiasm for the impressive kiwi.
- NZD/USD is testing resistance at .7092. The next resistance line is at 0.7145
- There is support at 0.6998, followed by support at 0.6957
- The pair broke above the 10-day MA on Thursday, which indicates an upswing
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