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NZD/USD: July RBNZ Meeting Preview

Relevance up to 01:00 2022-07-13 UTC–4

The NZD/USD pair shows a pronounced downward trend. Over the past six weeks, the New Zealand dollar has been actively losing its positions. If traders were approaching the 66th figure at the end of May, then today the pair is already testing the 60th price level. The kiwi is getting cheaper mainly due to the strengthening of the US currency, which sweeps away everything in its path. For example, when paired with the euro, the greenback reached the parity level (for the first time in 20 years), while when paired with the kiwi, traders have already updated the two-year low. The NZD/USD pair was last in the area of the 60th figure in the spring of 2020, during the coronavirus crisis.

At the moment, the coronavirus is just one of the puzzles of the general negative fundamental picture. There is another outbreak of the disease in the world, but now the market approaches the issue of the spread of coronavirus differently, and this approach is quite pragmatic. Traders are primarily concerned about the reaction of the authorities and the possible economic consequences of the next wave of the epidemic in the context of new lockdowns.

The very fact of an increase in the number of infected is an alarming signal, but no more. Europe is now in no hurry to strengthen quarantine restrictions, despite COVID outbreaks in Italy, Germany and France. Europeans (so far) prefer to focus on vaccination, urging residents to get a booster dose of coronavirus vaccination.

But in China, a mirror situation has developed: against the background of a relatively small number of detected cases, China is quarantining multimillion megacities, thereby destroying many logistics chains. As you know, the Chinese market occupies an important place in New Zealand’s foreign trade, being the largest trading partner of this country. Therefore, in this case, the “coronavirus factor” plays against the New Zealand dollar, taking into account the “zero tolerance” policy of the PRC regarding Covid.

In addition, the kiwi was under pressure after the release of the latest data on the growth of the national economy. The country’s GDP in the first quarter of this year unexpectedly decreased by 0.2% on a quarterly basis, while most experts expected an increase of 0.6%. Note that in the 4th quarter of last year, the New Zealand economy grew by 3.0%. In annual terms, the volume of GDP increased by only 1.2%, contrary to forecasts of growth to 2.4%. In the fourth quarter of 2021, this indicator showed an increase of 3.1% YoY.

It is worth noting one more point: in recent months, the New Zealand housing market has begun to slow down sharply. The supply in the country’s real estate market has been consistently and continuously growing since October last year, while demand has also been consistently declining. According to specialized experts, such trends are observed against tightening lending criteria, increasing mortgage interest rates, and global financial risks.

The above fundamental factors may play a role in the fate of the New Zealand dollar, especially in light of the July meeting of the Reserve Bank of New Zealand, the results of which we will learn on Wednesday, July 13. According to the general forecast, the regulator will raise the interest rate again by 50 basis points. It is a widely anticipated event fully accounted for in prices. Therefore, traders of the NZD/USD pair will focus on the rhetoric of the accompanying statement.

According to a number of experts, the RBNZ may slow down the pace of monetary policy tightening in the second half of the year. There are only four meetings of the regulator left until the end of the year–the “dovish” scenario assumes that after the July 50-point increase, the central bank will increase the rate at the three remaining meetings this year at a 25-point pace. If the regulator hints about this tomorrow, the NZD/USD bears will receive an additional informational reason for the development of the downward trend. In my opinion, this scenario is very likely, given the above circumstances.

However, even if the RBNZ surprises traders with hawkish rhetoric tomorrow, it is advisable to use any upward surge of NZD/USD to open short positions. The US currency is still in high demand as a protective tool against geopolitical tensions, risks of a global recession, and rising inflation. Therefore, even the “ultra-hawkish” attitude of the New Zealand regulator will not deploy the NZD/USD pair. Buyers will be able to be content with only corrective pullbacks.

Thus, the fundamental picture for the kiwi leaves much to be desired. Therefore, a further decline in price is expected in the medium and long term, and, consequently, short positions are in priority. From a technical point of view, the pair on the daily chart is located under the Kumo cloud and between the middle and lower lines of the Bollinger Bands indicator. The main downward target is the 0.6050 mark, which corresponds to the lower line of the Bollinger Bands indicator on the weekly chart.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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