NZ dollar soars on China stimulus plan

NZD/USD has climbed sharply today. In the European session, NZD/USD is trading at 0.6247, up 0.95% on the day.

China announces stimulus

The New Zealand dollar received a welcome boost from China, which announced a 19-point policy package to stimulate economic growth. The world’s second-largest economy has been dragged down by its strict zero-Covid stance, which included lockdowns in Shanghai and elsewhere. The global slowdown triggered by the Russian invasion of Ukraine as made things even worse. China’s GDP rose just 0.4% in Q2, and this has hurt New Zealand’s economy, with 1/3 of its exports going to China. However, the Chinese government has responded with stimulus measures. Earlier in August, the People’s Bank of China lowered interest rates on lending facilities and the latest announcement will pour 1 trillion yuan ($146 billion) into infrastructure and other programs. If the Chinese economy can get back on track, it will be good news for the New Zealand economy and the kiwi.

Investors gave a thumbs-up to the New Zealand dollar after China’s stimulus announcement, shrugging off a dismal retail sales report for the second quarter. After a -0.9% in Q1, the markets had forecast a strong rebound of 1.7%. Instead, retail sales slid to -2.3%, as consumers continue to cut back on spending. Higher interest rates and rising inflation have hammered consumers who are pessimistic about the economic outlook. Consumer spending is a key driver of the economy, and if GDP for Q2 is negative, it would mark a second straight quarter of negative growth, which would mean that technically the economy has been in a recession for the first half of the year.

The New Zealand dollar has been very active this week, and there could be more drama to come, with RBNZ Governor Orr addressing the Jackson Hole Symposium today and Fed Chair Powell on Friday. Investors will be listening carefully and both speeches should be treated as market-movers for NZD/USD.

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NZD/USD Technical

• 0.6266 is under pressure in resistance. 0.6366 is the next line of resistance
• There is support at 0.6126 and 0.6075

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