NZD falls as consumer confidence slows

The New Zealand dollar continues to lose ground. In the European session, NZD/USD is trading at 0.6715, down 0.39% on the day. The currency ended last week on a sour note, falling 0.89%.

New Zealand consumers pessimistic

There is a lack of holiday cheer amongst New Zealanders, according to the Westpac Consumer Sentiment index for Q4. The index slowed for a second successive quarter, dropping to 99.1, down from 102.7 beforehand. The decline is significant because confidence has fallen below the 100-level, which indicates that more people are pessimistic than optimistic about the economy. Westpac noted that households were worried about the economy, higher interest rates and the newest Covid variant, Omicron. The lockdowns have also taken a toll on consumer confidence, as consumer prices have risen rapidly and reduced consumers’ purchasing power.

The New Zealand economy contracted in Q3 by 3.7%. The sharp decline didn’t send the kiwi tumbling, as investors may have been relieved that the release wasn’t as grim as the RBNZ projection of a -7% plunge. Recent economic indicators have been solid, such as employment data and consumer spending. Even with negative growth in Q4, the Fitch ratings agency has projected that the economy will grow by 5.3% this year. However, Fitch expects growth to moderate to 3.8% in 2022, in part a result of tighter monetary policy. The RBNZ has embarked on a series of rate hikes which are to extend into 2022, but the bank will have to steer the economy and ensure that higher rates do not choke off economic growth.

New Zealand continues to post trade deficits. In November, trade balance came in at NZD -864 million. Still, this was better than expected and a smaller deficit than the October reading of -1302 million.

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NZD/USD Technical

• There is resistance at 0.6813. Closely above is resistance at 0.6889
• NZD/USD has weak support at 0.6681. Below, there is support at 0.6625

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