The NZDUSD exchange rate has dropped sharply after the central bank slashed rates by 50 basis points last week.
NZDUSD – Daily Chart
The NZD/USD has moved lower from the attempt to climb above the 0.5800 level. This opens up the potential for the pair to move lower toward the 0.5500 support level in the coming weeks.
The Reserve Bank of New Zealand (RBNZ) cut the policy rate by 50 basis points on Wednesday. Market pricing and analyst consensus had been evenly spread between a 25bp and 50bp cut ahead of the meeting.
“The Committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2% target mid-point in the medium term.” The RBNZ said.
The dovish stance comes as a relief for the government after Prime Minister Christopher Luxon saw his popularity decline due to economic weakness.
It will be important to watch the market from Sunday into Monday to see if the USD experiences selling pressure due to the trade spat with China. Otherwise, the New Zealand dollar could see the bearish trend continue.
The New Zealand currency has been struggling after its economy started to struggle. The Kiwi economy shrank at a shocking 0.9% pace in the last quarter. They also had two smaller quarters before that, and Kiwi unemployment has returned to levels seen ahead of the pandemic.
There is now a worrying trend for the country, with thousands of citizens buying one-way tickets to Australia to try the job market in Brisbane, Melbourne, and Sydney. Between March and June this year, New Zealand’s population shrank.
“The government’s books have taken a hammering over the past six years or so,” said the NZ Treasurer in her Budget speech this year. “Spending has risen sharply. So has government debt”.
These trends could continue to weigh on the country’s currency, but if the U.S. resolves the trade and government shutdown issues, the U.S. dollar could strengthen against the NZ dollar.
