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Kiwi Dollar Plunges After RBNZ Flags Hikes Over New Zealand Currency
Summary:
In a surprising turn of events, the New Zealand dollar experienced a significant drop of over 1% on Wednesday, reaching its lowest level in more than three weeks at $0.6187.
EXPIRED
0.62300
ENTRY
0.61200
TGT
0.62900
SL
0.58854 -0.00196 -0.33%
--
Point
EXPIRED
0.61200
TGT
0.60794
CLOSING
0.62300
ENTRY
0.62900
SL
In a surprising turn of events, the New Zealand dollar experienced a significant drop of over 1% on Wednesday, reaching its lowest level in more than three weeks at $0.6187. The decline followed the Reserve Bank of New Zealand's (RBNZ) decision to raise cash rates by 25 basis points to 5.5%, as expected. However, it was the central bank's indication that it may conclude its tightening campaign that shook the market. This article will delve into the factors contributing to the Kiwi dollar's plunge and explore the potential implications for New Zealand's economy.
RBNZ's Monetary Policy Decision
The RBNZ's decision to increase cash rates aligns with market expectations. However, what caught investors off guard was the central bank's signaling that borrowing costs may have already peaked at the current level. The RBNZ anticipates a possible commencement of rate cuts in the third quarter of 2024. This change in sentiment from the central bank introduced uncertainty and led to a significant sell-off in the Kiwi dollar.
Economic Outlook and Retail Sales
The RBNZ's updated projections also played a role in the Kiwi dollar's decline. The central bank now expects a shallower economic slowdown, with a mild recession projected for the second and third quarters of this year (Q2 and Q3 2023). This more optimistic economic outlook likely influenced the decision to consider rate cuts in the future.
Adding to the negative sentiment, New Zealand's retail sales figures for Q1 2023 showed a contraction of 1.4% quarter-on-quarter. This decline was steeper than the previously downwardly revised 1% and marked the second consecutive quarter of contraction. Weak retail sales data suggests a slowdown in consumer spending, which could have broader implications for New Zealand's economic growth.
Technical Analysis
From a technical standpoint, the NZDUSD price experienced a bearish breakout from a flag pattern following the news. Currently, it is heading towards the support level at 0.61200. However, technical analysts are awaiting a correction back to around the 0.62300 level, which aligns with a confluence of factors. Firstly, it coincides with the broken structure, indicating a potential reversal. Secondly, it aligns with the 50% Fibonacci retracement level, which often serves as a significant support or resistance point. Lastly, the price is now below the 20-day exponential moving average (EMA), further reinforcing the bearish sentiment.
It is worth noting that the dollar index remained near a two-month high of 103.5 during this period. Market participants are closely monitoring the progress of US debt-ceiling talks as the deadline of June 1st approaches. The outcome of these talks could have a substantial impact on the global currency markets, including the New Zealand dollar.
The New Zealand dollar experienced a significant drop after the RBNZ's decision to raise cash rates and signal a potential conclusion to its tightening campaign. The central bank's projection of a shallower economic slowdown, coupled with weak retail sales data, added to the negative sentiment surrounding the Kiwi dollar. Technical analysis suggests a potential correction before further downside movement. Investors will continue to monitor the progress of US debt-ceiling talks, which could introduce additional volatility to the currency markets.
TRADE RECOMENDATION
SELL NZDUSD
ENTRY PRICE :0.62300
STOPLOSS : 0.62900
TAKE PROFIT : 0.61200.
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