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NZD slips to major support levels – what’s the forecast?

Chris Lee

The New Zealand dollar (NZD) has finally caved in to a slow but sure build-up of selling pressure as the Reserve Bank of New Zealand announced plans for the proposed economic recovery of the country.

The details of the plans announced by the Reserve Bank of New Zealand included the expansion of a large-scale asset purchase programme, which covered asset purchase up to $100bn, and signalled to the markets that additional monetary measures can, and will, be taken if necessary.

These additional measures included foreign asset purchases and a negative OCR rate.

In terms of the outlook for the rates for the Reserve Bank of New Zealand, while the cash rate did hold steady at 0.25%, it looks likely that this is only a temporary measure, with negative rates always a possibility.

This openness to additional measures seems to indicate that the New Zealand government is taking the recovery plan very seriously, which is reflective of its response to the COVID-19 pandemic more generally.

Although the most recent currency trading data on the NZD seems to indicate that the domestic economy is performing at or slightly above expectations given the decline in key industries such as tourism, the threat of another possible outbreak looms heavy.

Nevertheless, employment figures are beginning to return to normal, which is hopefully a sign of good things to come.

In terms of how this was reflected in the markets, the picture isn’t quite as simple as one might think given all of the above.

In fact, some technical analysts are suggesting that if key support lines see further slips backward, this could see losses accelerate in line with previous trend lines.

On the other hand, if the NZD does manage to break through and begin to climb, then this could be an encouraging sign that losses are beginning to be recouped – potentially beyond the 2020 peak of 0.6745 for the NZD/USD.

The forecast for the NZD/CAD is similar to that of the NZD/USD, with the NZD stepping into familiar territory as before in 2016 with the loonie.

With all this said, we can certainly identify a number of signs that recent policy decisions by the Reserve Bank of New Zealand might have triggered a series of bearish trends among forex brokers and currency traders.

Traders looking to buy into the NZD should do so carefully given these indications, with a bearish breakdown always a possibility.

With so much uncertainty still out there, it seems as though the health of the economy is very much still in the hands of the policymakers.

As such, any currency traders with investments in any of the NZD currency pairs would be well advised to keep a keen eye on any of the upcoming announcements by the New Zealand government.

If its overall response to the COVID-19 pandemic is anything to go by, the NZD appears to be in safe hands for the time being.

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Chris Lee
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