New Zealand dollar under pressure

The New Zealand dollar has kicked off the week with slight losses. Currently, NZD/USD is trading at 0.7109, down 0.21% on the day.

NZ dollar gets spanked

The US dollar starkly underperformed in the last two months of 2020, and the New Zealand dollar climbed an impressive 8.7% during that time. However, the US dollar has looked much healthier in the month of January, gaining 1.1% against the New Zealand dollar. On Friday, the US dollar was broadly higher, despite weak retail sales numbers. NZD/USD fell by 1.34%, its worst one-day performance since August.

There are good reasons to expect that the positive momentum we are seeing with the US dollar could continue this week. Janet Yellen, former Federal Reserve Chair, is expected to be approved by Congress as the Treasury Secretary. The Wall Street Journal has reported that Yellen is expected to say at her confirmation hearing on Tuesday that the value of the dollar should be determined by market forces. These kinds of statements are bullish for the currency. As well, there is an expectation that US yields will rise after Joe Biden is sworn in as president on Wednesday, which would likely boost the dollar. Pro-cyclical currencies like the New Zealand dollar have outperformed against the US dollar, so a strong comeback by the greenback early in the year could see a strong downturn by these currencies.

China is New Zealand’s largest trading partner, and strong China data often provides a boost for the New Zealand dollar. That was not the case on Monday, as China GDP for Q4 of 2020 was stellar, with a gain of 6.5 per cent. This was up sharply from the Q3 gain of 4.9% and the highest growth rate since 2018. The strong reading failed to bolster the kiwi, but if China continues to post sharp numbers, it would be good news for the New Zealand economy and bullish for the New Zealand dollar.

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NZD/USD Technical

• There is resistance at 0.7207, followed by resistance at 0.7284
• NZD/USD has weak support at 0.7086. Below, we find support at 0.7042
• The pair is within striking distance of the 50-MA line, at 0.7059. A close below this line would be a bearish technical signal.

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