New Zealand dollar slides to 5-week low

The New Zealand dollar is in negative territory on Tuesday and has posted two straight losing sessions. NZD/USD is currently trading at 0.6925, down 0.40% on the day. In the European session, the pair touched a low of 0.6921, its lowest level since October 13^th.

Retail sales sends New Zealand dollar lower

The New Zealand dollar is having a rough start to the week and is already down 1.0%. The struggling kiwi didn’t get any help from retail sales for Q3, which declined sharply due to the lengthy lockdown in Auckland. Retail sales fell -5.20% y/y and -8.10% q/q, both of which were much softer than expected. As well, supply disruptions led to a shortage of motor vehicle parts and other products, hurting sales.

The disappointing drop in consumer spending comes just ahead of the RBNZ’s policy decision. The central bank has signalled that it will embark on a series of rate hikes, after getting the ball rolling with a 0.25% increase in October. With another hike a virtual certainty at the Thursday meeting, the burning question for the markets is whether the bank will play it safe with a 0.25% hike or will we see an aggressive move of 0.50%. The uncertainty in the markets over the RBNZ could mean further volatility for the New Zealand dollar during the week.

Aside from domestic troubles, the New Zealand dollar is also being weighed down by a deterioration in risk sentiment, which began late last week. There are a host of hot spots across the globe that have dampened risk appetite. We are seeing a fourth wave of Covid in Europe which has resulted in a huge number of cases in Germany and elsewhere. In China, the property sector remains in trouble and the central bank has taken measures to limit speculation in the yuan and stem its appreciation. Finally, the Russian military build-up on the border with Ukraine could lead to a military escalation. These hotspots have resulted in a risk-off environment which has curbed demand for risk currencies such as the New Zealand dollar.

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NZD/USD Technical

• There is resistance at 0.6958 and 0.7059
• NZD/USD continues to break below support levels. The pair is currently testing support at 0.6918. Below, there is support at 0.6857

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