The New Zealand Dollar (NZD) is experiencing a downward trend, dropping below 0.5900 as China's economy slows in July. This decline is primarily attributed to weaker-than-expected Chinese Retail Sales and Industrial Production data, which have a significant impact on the China-proxy New Zealand Dollar (NZD) against the US Dollar (USD).
China's Retail Sales growth of 0.6% year-over-year (YoY) fell short of the estimated 1.5%, and Industrial Production rose by 4.5% YoY, down from 5.3% in June. These figures indicate a loss of momentum in China's economy, which has a substantial impact on New Zealand's exports, given China's status as New Zealand's largest trading partner. The negative news from China has led to a decline in the Kiwi, as any slowdown in China's economy typically results in reduced demand for New Zealand's exports.
However, there's a silver lining for the NZD/USD pair. The US Federal Reserve (Fed) is now pricing in a September quarter-point hike with a near-65% chance of a hold, thanks to softer consumer price inflation and weaker retail sales. This could potentially undermine the Greenback, providing a tailwind for the NZD/USD pair. The Reserve Bank of New Zealand (RBNZ) is also expected to pause after the July hike, as indicated by Commerzbank's Volkmar Baur. Baur suggests that the RBNZ will maintain a hawkish stance due to ongoing Middle East risks, which may offer some support to the Kiwi in the near term, despite the weak domestic economy.
From a technical analysis perspective, the NZD/USD pair exhibits a constructive bullish bias, as it remains above the 100-day moving average and the Bollinger middle band. The pair is approaching the Bollinger upper band, which acts as an immediate resistance level. The Relative Strength Index (14) is around 61, indicating bullish sentiment but not overbought conditions. This suggests that buying pressure is still present, but may slow as the price approaches overhead supply.
On the downside, the Bollinger middle band at 0.5855 and the 100-day moving average at 0.5830 provide initial support. The Bollinger lower band at 0.5765 acts as a deeper cushion in case of a broader pullback. A clear break above the Bollinger upper band at 0.5945 would signal a continuation of the recovery, while failure to overcome this barrier could lead to consolidation or a corrective dip toward the support cluster.
In conclusion, the New Zealand Dollar (NZD) is facing downward pressure due to China's economic slowdown, but the potential for a US Fed rate hike and the RBNZ's hawkish stance may provide some support. The technical analysis suggests a constructive bullish bias, with immediate support levels and resistance levels in place. As always, investors should carefully consider these factors and conduct thorough research before making any investment decisions.
