NZ dollar drops below 70 level

The New Zealand dollar remains under pressure in what has been a rough week for the currency. NZD/USD has fallen 1.45% this week and is currently trading at 0.7015, down 0.13% on the day. In the Asian session, the New Zealand dollar slipped below the 0.70 line, a psychologically significant level.

There was some positive news from the manufacturing sector, as the BusinessNZ Manufacturing Index showed stronger expansion in October. The index rose to 54.3, up from 51.6 in September. A reading above 50.0 indicates expansion. This follows a disappointing read from ANZ Business Confidence for November, which fell to -18.1, down from 13.4 points. The manufacturing sector may be showing signs of expansion, but manufacturers are struggling with high costs and supply bottlenecks, which is hampering stronger growth in the sector.

The RBNZ has been cautiously optimistic about the country’s recovery from Covid, although higher global inflation remains a concern. Closer to home, the central bank has warned that the red-hot housing market runs the risk of a correction, as recent buyers could find themselves in trouble if mortgage rates rise or house prices fall. The bank has said that the economy has rebounded to pre-pandemic levels, but noted the recent Delta outbreak could hamper economic activity.

In the US, this week’s surge in inflation (both PPI and CPI are red-hot) means that the Fed’s message that inflation is transitory is in danger of falling on deaf ears. The markets are becoming more skeptical of the Fed’s guidance on rate policy, and the view that the Fed will have to hike ahead of when they have indicated continues to gather steam. If inflation continues to climb, we can expect the Fed to become more hawkish – this could mean accelerating the timeline of the Fed taper in order to set the stage for an earlier than expected rate hike.

NZD/USD Technical

  • There is resistance at 0.7188 and 0.7255
  • NZD/USD is testing support at 0.7005. Below, there is support at 0.6938

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