The NZD/USD currency pair has recently hit its lowest point since October 2022, currently trading around 0.5620. This decline is alarming for investors and traders who monitor currency performance, as it reflects broader economic conditions affecting both New Zealand and the United States. Two primary factors are causing this downward trend: a strengthening US dollar and weak economic data emerging from New Zealand.
At the forefront of the NZD/USD drop is the robust growth of the US dollar. After the Federal Reserve’s December meeting, the greenback has bolstered its position in the global market due to market expectations about future interest rate cuts. The expectation is that the Federal Reserve will maintain a stringent monetary policy in the near term, especially extending into 2025. Such prospects naturally draw investors toward the dollar, given its safer haven status, which invariably puts pressure on other currencies, including the New Zealand dollar.
On Wednesday alone, the NZD lost 2.3% against the US dollar, starkly highlighting the influence of the Fed’s hawkish monetary approach. Every bit of momentum that the US dollar gains seems to drag the NZD lower, creating a troubling cycle for New Zealand’s currency traders.
Coupled with the dollar’s rise, New Zealand’s domestic economic landscape presents a troubling picture. Recent GDP figures have raised red flags for economic health, revealing a contraction of 1.0% in the third quarter of 2024, following a staggering revised decline of 1.1% in the second quarter. Compared to last year’s performance, the annualized decline of 1.5% is disconcerting. Such significant economic setbacks prompt concerns regarding a potential recession, pressuring the Reserve Bank of New Zealand (RBNZ) to act preemptively.
The RBNZ has already cut interest rates more aggressively than many of its global counterparts. With further potential for easing on the horizon, this dovish stance could weigh heavily on the NZD as investors anticipate even lower returns on investments denominated in New Zealand dollars.
Delving into the technical aspect of NZD/USD trading, recent analysis on the H4 chart has shown a downward trajectory following a retreat from the 0.5785 level. After breaching the support level at 0.5690, a continuation of the bearish trend appears imminent, with targets set as low as 0.5598 before any potential corrective bounce might occur. The breakdown below the 0.5690 threshold opens the door to further declines, possibly pushing the pair down toward 0.5454.
On the hourly (H1) chart, the formation of a downward wave is still evident, suggesting that while temporary corrections may occur—such as a potential rise back to 0.5690—the overall sentiment remains bearish. Indicators like the Stochastic oscillator confirm this downward momentum, indicating room for further depreciation.
The decline of the NZD/USD currency pair is a multifaceted issue driven by external economic pressure from the US and problematic domestic indicators from New Zealand. As both central banks navigate their respective monetary policies in response to these conditions, traders should remain vigilant for signs of either recovery or further weakness as the market continues to grapple with these dynamics.