Kiwi plunge extends NZD/USD downtrend to new lows
James Chen, CMT October 19, 2017 4:12 PM
The New Zealand dollar was pummeled on Thursday after the New Zealand First party opted to form a coalition government with the Labour Party, led by newcomer and incoming Prime Minister Jacinda Ardern, rather than with the incumbent Nationalist Party led by current Prime Minister Bill English. Concerns surrounding this new government with respect to the New Zealand dollar center on fears that such a coalition would work towards more growth-oriented central bank reforms that will likely result in a sustained period of lower interest rates from the Reserve Bank of New Zealand (RBNZ).
After the news of this decision by NZ First on Thursday, the resulting plunge in the New Zealand dollar prompted NZD/USD to fall to a new depth just above the 0.7000 level, a low not seen since late May. This sharp NZD/USD drop occurred despite the US dollar’s relative weakness against other currencies on Thursday.
It remains to be seen if the new coalition government will indeed institute the noted RBNZ reforms, but the sheer prospect of an extended period of accommodative monetary policy in New Zealand would place the RBNZ in sharp contrast with the comparatively hawkish Fed outlook that currently prevails. This would highlight an increasing monetary policy divergence between New Zealand and the US that would likely place further pressure on NZD/USD.
From a price perspective, the currency pair’s plunge on Thursday broke down below the 0.7050-area lows of last week. Since late July’s multi-year high at 0.7557, NZD/USD has fallen sharply, breaking down below multiple key support levels. With further downside momentum on the latest breakdown, the next major downside targets are around the 0.6900 and 0.6700 support areas.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.