The NZD/USD pair has dropped to 0.5590 as of Friday, reflecting a two-year low due to a robust US dollar coupled with concerns regarding China’s economic outlook. This decline in the New Zealand dollar occurs just before the release of key December data, which is crucial for shaping market expectations about the Federal Reserve’s monetary policy path. Most investors expect the Fed to hold a cautious approach toward interest rate changes, which strengthens the US dollar and puts additional pressure on other currencies.
US Factors Impacting NZD/USD
The minutes from the Federal Reserve’s December meeting underscored persistent concerns over inflation. The documents indicated the Fed’s reluctance to pursue aggressive monetary policy easing given ongoing inflation risks. Concerns around potential inflationary pressures from President-elect Donald Trump’s proposed tariffs further contribute to this cautious stance. Consequently, the Fed is unlikely to swiftly or significantly ease monetary conditions, bolstering the strength of the US dollar.
China’s Economic Struggles Affecting NZD
Weak inflation figures from China, New Zealand’s largest trading partner, exacerbate the challenges faced by the NZD. The lackluster inflation data suggests declining domestic demand in China, which raises alarms for trade-dependent economies like New Zealand. A downturn in Chinese demand for goods and commodities poses a direct threat to New Zealand’s exports, further undermining the NZD/USD pair.
New Zealand’s Domestic Challenges
On the domestic front, New Zealand is dealing with a severe recession that fuels expectations for further monetary easing. The Reserve Bank of New Zealand (RBNZ) is scheduled to meet in February, with projections indicating another 50-basis-point rate cut, lowering the official cash rate from 4.25% to 3.75%. By the end of 2025, the rate might decline to around 3.00% as the RBNZ attempts to bolster the struggling economy by making credit more accessible.
In summary, escalating recessionary pressures, weak domestic demand, and limited external demand from China create a challenging landscape for the New Zealand dollar.
Technical Analysis of NZD/USD
On the H4 chart, the NZD/USD pair continues to decline after breaking below the significant level of 0.5785. A consolidation range around 0.5612 has formed, likely to be resolved with a bearish breakout. The next target is 0.5530, where a temporary correction back to the 0.5612 level (from below) may occur. If the price sustains a break below 0.5530, it could lead to an extended decline towards 0.5200, the primary target for the current downtrend.
This outlook is reinforced by the MACD indicator, with its signal line below the zero level and trending downward, indicating strong bearish momentum.
On the H1 chart, the market exhibits a consolidation range around 0.5612, indicating indecision. However, a downward breakout is anticipated, leading to a continued decline toward 0.5530. Afterward, a corrective wave back to 0.5612 is possible before the pair resumes its downward trend toward 0.5200.
The Stochastic oscillator supports this forecast, with the signal line near the 20 level, reflecting significant downward pressure and affirming the continuation of the bearish trend.
Overall Outlook
The forecast for the NZD/USD pair remains bearish, influenced by both domestic and international factors. The Fed’s cautious stance, alongside a strong US dollar and weak demand from China, poses serious challenges for the NZD. Domestically, New Zealand’s recessionary pressures and anticipated rate cuts from the RBNZ will likely keep the currency under continuous pressure.
Unless there is a considerable turnaround in China’s economic situation or a change in the Federal Reserve’s policy approach, the NZD/USD pair is expected to continue its downward trajectory, with 0.5200 emerging as a critical level to monitor.
By RoboForex Analytical Department
Disclaimer
The forecasts presented here represent the author’s personal opinion and should not be regarded as trading advice. RoboForex assumes no responsibility for trading outcomes based on the recommendations and analyses included herein.
