New Zealand Dollar Sentiment Sees a Slight Recovery Amidst Recent Central Bank Actions

The New Zealand dollar's sentiment has seen a slight recovery in recent days, despite most currencies experiencing gains against the US dollar. This development comes on the heels of the Reserve Bank of New Zealand (RBNZ) announcing its double cut, which has been met with positive expectations given the anticipation of a triple cut. In this article, we will delve into the recent news and data affecting the New Zealand dollar, examine the charts of NZDUSD and NZDJPY, and provide an overview of the RBNZ's monetary policy decisions.

Monetary Policy Decisions by the Reserve Bank of New Zealand

The governor of the RBNZ, Adrian Orr, hinted in comments after Wednesday's cut that another double cut would be possible in February 2025. This statement aligns with the context of growth in New Zealand, which has not been in recession since early 2023 but has seen a sluggish rebound from that technical recession. A weaker Chinese economy is an essential factor in this scenario, as New Zealand relies heavily on exports to China.

Moreover, job and spending data have been lukewarm, with politics also playing a role due to increasing disagreements among the parties of the governing coalition. The decline in inflation has been consistent over the last several months, with 2.2% annual headline inflation in the third quarter being the lowest reading since the first quarter of 2021. Now that inflation is close to the target of around 2%, and with the overall economy near stagnation, the RBNZ seems to have more confidence in continuing its cycle of loosening.

The Impact of American Politics on New Zealand's Economy

Donald Trump's election as American president is likely to have a significant but indirect effect on New Zealand's economy. As a highly trade-sensitive nation, New Zealand's economy would be challenged by proposed American tariffs on Chinese goods if they were implemented. This development could potentially impact the RBNZ's monetary policy decisions and, subsequently, the value of the New Zealand dollar.

The Reserve Bank of New Zealand's Monetary Policy Decisions

Broadly speaking, the RBNZ seems likely to follow a similar path to major central banks, possibly moving at a slightly faster pace given how high Kiwi rates reached last year. It is unlikely that a significant differential will open up between the RBNZ and the Federal Reserve before summer 2025, but the speed of the RBNZ's rate cuts could be a critical factor for NZDJPY in the months ahead.

NZD/USD's Bounce Might Have Potential

Recent American data has generally been in line with expectations, supporting the impression that the Fed will continue to cut gradually. The RBNZ's double rather than triple cut on Wednesday also gave some support to NZDUSD. The selection of Scott Bessent as incoming American Treasury Secretary has somewhat decreased the likelihood of immediate large tariffs.

The 20 SMA is an essential dynamic resistance on the chart of NZDUSD and might push the price lower in the next few days, but a close above there could signal an ongoing bounce. There is no clear signal from volume, so a new sideways trend is also a possibility.

NZD/JPY Might Return to the Range

The fundamental situation for NZDJPY is essentially different from most other pairs with the Kiwi dollar since the Bank of Japan is in a cycle of slow tightening rather than the RBNZ's relatively aggressive loosening. The probability of a hike by the BoJ on 19 December is now about 60%. Possible new American tariffs on imports would affect both countries, but New Zealand would likely face a much stronger though indirect effect due to its significant trade with China.

Although the sideways trend since early October isn't very well established, the recent downward movement still looks like a fakeout. 27 November's doji wasn't followed by a clear down candle and the price is clearly oversold based on Bollinger Bands and the slow stochastic. ¥91 remains the primary reference. A move back above ¥92 seems highly unfavorable in the near future but volume and volatility probably need to increase before there's another test of the strong support around ¥86.50.

Conclusion

In conclusion, the New Zealand dollar's sentiment has seen a slight recovery in recent days, despite most currencies experiencing gains against the US dollar. The RBNZ's double cut and hints at further rate cuts have been met with positive expectations given the anticipation of a triple cut. However, the impact of American politics on New Zealand's economy cannot be understated, particularly regarding proposed tariffs on Chinese goods. As the RBNZ continues to loosen its monetary policy, it will be essential to monitor the speed and direction of these rate cuts, which could significantly influence the value of the New Zealand dollar.