After a week of cautious New Zealand dollar market sentiment with a focus on hints about the Federal Reserve’s future actions, Chair Powell provided some insights. He emphasized that the central bank would maintain its tight policy stance until clear indications of economic moderation and decreased inflation emerged. Powell also stressed the Fed’s cautious approach toward upcoming data influencing future policy choices.
However, Thomas Barking and Loretta Mester also shared their insights. Barkin expressed his belief that the Fed will maintain its position until the end of the year, while Mester indicated that the central bank might need to address remaining tasks. Additionally, Mester conveyed her view that a Fed rate cut is unlikely in 2024.
In response, as per CME FedWatch, markets are embracing the hawkish stance, pushing the probability of a 25-basis point hike to nearly 44%. Correspondingly, yields on the 2-year, 5-year, and 10-year US Treasuries climbed to 5.07%, 4.46%, and 4.23%, respectively, bolstering the USD.
On the New Zealand front, the Kiwi encountered selling pressure throughout the week due to concerns about the Chinese economy, given China’s status as a major trading partner. However, reports indicate that the Chinese government intends to alleviate the housing sector’s challenges. These measures are designed to stimulate home purchases by lifting constraints on first-time buyers and offering tax incentives. Nonetheless, these actions face limitations due to existing market complexities and investor skepticism, which is evident in China’s equities’ ongoing underperformance.
Technical Point of View of New Zealand Dollar
The New Zealand dollar’s dynamics turned bearish after reaching $0.6400 in mid-July. Following a brief pause at the $0.6200 mark, the bearish trend breached the demand level. Initially, the market anticipated a rebound at the $0.6000 level, but it fell short of reaching that point.
However, below the $0.6000 mark, the market traded sideways, finding support around $0.59129. Currently, the Relative Strength Index (RSI) hovers just above the 30 level at 32, suggesting the potential for a minor price rally from this point.
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