NZD/USD: the illusion of recovery rates

The new Zealand dollar rose across the market after the announcement of the November meeting of the Central Bank of the country. The rhetoric of the new Zealand regulator unexpectedly tightened to the surprise of the traders, who are accustomed to pessimistic and cautious RBNZ forecasts. The pair nzdusd for the day jumped by nearly 100 points, but the growth has stalled near resistance level 0.6970 (middle line of Bollinger Bands indicator on D1). Prospects for further growth, prices seem to be uncertain, as the overall fundamental background for the kiwi remains subdued, but positive promises RBNZ are too remote.

A week ago in New Zealand has published key data on the labor market. They were much better than expected: the unemployment rate fell to 4.6%, while the number of employed people increased to 2.2% (with the forecast of 0.8%). It has also increased the share of economically active population. Thus, the labor market has returned to pre-crisis levels due to the growth in the working age population and a record increase in the «net» migration.

Also slightly increased and the rate of inflation in the third quarter of the CPI was 1.9% in annual terms. On a monthly basis, the inflation index also increased from zero to 0.5%.

Such positive data was reflected in the General mood of the members of the new Zealand regulator. However, their optimism comes too late period. In response to lower unemployment and inflation, the RBNZ moved a possible increase in interest rates since the third quarter of 2019 for the second quarter of this year.

In my opinion, this is a rather weak argument for the resumption of the Northern trend of the nzdusd in the short and medium term. First, it is too vaguely looks hypothetical prospect of monetary policy tightening. Second, inflation is unsustainable. In the first quarter of this year, the consumer price index reached 2.2% (in annual terms), but then declined to 1.7%. Secondly, we should not forget that in New Zealand, came to power former opposition who declare very radical changes, including in the economic sphere.

But the problem lies in the fragility of the coalition formed. Because in addition to the «base» of the party – the labour party – the coalition includes «Green» and representatives of the political force «New Zealand first», which is known for its anti-immigration stance and populist statements. The relationship between «Junior partners» in the coalition was very tense before the election. «Green» has repeatedly publicly criticized political populism, and their opponents, in turn, quite scornfully about the environmental bills. Of course, a forced Union in the coalition has reduced the intensity of political confrontation, however, the strength of their relationship yet to be tested in practice during the parliamentary polls.

In other words, the new government will need to prove its effectiveness, and intra infighting will undoubtedly prevent this. Another open question is how to react to the economy of New Zealand to tighten immigration and environmental legislation, as well as on the restrictions for foreigners (in the field of acquisition of real estate and businesses).

It is also worth Recalling that New Zealand plans to reform the Central Bank, expanding the mandate similar to the fed. On yesterday press-conference acting head of the RBNZ Grant Spencer said that the planned innovations «is unlikely to significantly impact on the regulator’s policy». However, this issue is still under discussion, so the final version of the reform may reinforce concern for this reason.

In General, after a series of dovish RBNZ meetings, yesterday’s meeting differed some optimism. But all this optimism is addressed to distant prospects, while at the moment, the regulator categorically maintains dovish stance. «Loose monetary policy will remain for a long time» – with these words the head of the new Zealand regulator has concluded his speech.

In spite of such an obviously controversial nature of the November meeting, the pair nzdusd was adjusted to the middle of the 69th figure. If bulls are able to overcome the mark of 0.6970 and gain a foothold above it, on the technical side, the pair will open the way towards two resistance levels – 0.7010 (Kijun sen on D1) and further 0.7185 (the upper line of Bollinger Bands indicator on the same timeframe).

But given the General fundamental background and «sleeping» of the U.S. dollar, you may want to consider short positions from the above-mentioned resistance levels. It is worth to remind that the price index for dairy products (Global Dairy Trade) from the end of September is in the negative region, and the last auction showed a record this year decrease (-3,5%). All were sold is 1.7% less products than in the auction of October 17. Fell almost all dairy products on the background of the continuing decline in demand.

On the wave of the long-term optimism RBNZ traders virtually ignored this fact, but the next week the current macro-economic statistics will be a priority, as understanding that in the next eighteen months the new Zealand regulator will maintain the current position of monetary policy.

Irina Milosevic

The material has been provided by InstaForex company — www.instaforex.com

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