NZD/USD Rate Eyes April Low Ahead of New Zealand Retail Sales Report

  


New Zealand Dollar Talking Points

NZD/USD attempts to retrace the decline following the Reserve Bank of New Zealand (RBNZ) meeting, but the exchange rate may continue to give back the advance from the April low (0.5843) amid the failed attempt to push above the former support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion).

NZD/USD Rate Eyes April Low Ahead of New Zealand Retail Sales Report

NZD/USD bounces back from a fresh monthly low (0.5921) ahead of New Zealand’s 1Q Retail Sales report, but the update may produce a bearish reaction in the exchange rate as private sector consumption is expected to contract 1.5% following the 0.7% expansion during the last three months of 2019.

In response, the Reserve Bank of New Zealand (RBNZ) may take additional steps to support the economy as the central bank expands its Large Scale Asset Purchase (LSAP) programin May to NZ$60 billion from NZ$33 billion, and Governor Adrian Orr and Co. may retain a dovish forward guidance at the next meeting on June 24 as the “Monetary Policy Committee is prepared to use additional monetary policy tools if and when needed, including reducing the OCR (official cash rate) further.”

Image of RBNZ interest rate

Source: RBNZ

The gradual processes in restarting the New Zealand economy may force the RBNZ to deploy more unconventional tools as “members agreed that a ‘least regrets’ monetary policy approach is needed,” and it seems as though the central bank will remain proactive in combating the economic shock from COVID-19 as officials insist that “there are policy tools available that have not yet been used.

However, the RBNZ appears to be in no rush to implement a negative interest rate policy (NIRP) as Governor Orr and Co. argue that “further OCR reductions at this stage would not be effective,” and it remains to be seen if the central bank will implement more non-standard measures over the coming months as “members noted that the main thing needed to support the economy is fiscal stimulus.”

In turn, the RBNZ may revert to a wait-and-see approach after expanding the LSAP program, but speculation for a NIRP in New Zealand may continue to drag on NZD/USD especially as Federal Reserve Chairman Jerome Powell tames bets for negative US interest rates.

With that said, NZD/USD may continue to give back the advance from the April low (0.5843) amid the failed attempt to push above the former support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion).

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NZD/USD Rate Daily Chart

Image of NZD/USD rate daily chart

Source: Trading View

  • Keep in mind, NZD/USD has failed to retain the range from the second half of 2019 as the decline from earlier this year produced a break of the October low (0.6204), with a ‘death cross’ taking shape in March as the 50-Day SMA (0.5996) crossed below the 200-Day SMA (0.6324).
  • The negative slope in both the 50-Day SMA and the 200-Day SMA offer a bearish outlook for NZD/USD, and the advance from the yearly low (0.5469) appears to have stalled ahead of the former support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion) as both price and the Relative Strength Index (RSI) snap the bullish formations from March.
  • NZD/USD extends the decline from earlier this month following the failed attempt to test the April high (0.6176), with the break/close below the 0.6000 (100% expansion) to 0.6010 (161.8% expansion) region bringing the 0.5880 (100% expansion) area on the radar.
  • Need a break of the April low (0.5843) to open up the Fibonacci overlap around 0.5740 (78.6% retracement) to 0.5790 (61.8% retracement), with the next area of interest coming in around 0.5640 (261.8% expansion).

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— Written by David Song, Currency Strategist

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