Fundamental Analysis The NZD/USD currency pair remains under downward pressure around 0.5910 for the second day in a row; however, it partially reversed its earlier drop during Monday’s Asian session. This stabilization of the New Zealand Dollar appears to be linked to the recent release of Chinese economic data. In light of the close economic relations between China and New Zealand, developments in China's economic growth may prove important for the movement of the New Zealand Dollar. The recently published NBS data provided only a slight sentiment boost, with the Chinese Manufacturing PMI rising to 49.8 in August from 49.2 in July and exceeding the expected 49.7, but still staying below the 50 barrier that divides expansion from contraction. The Non-Manufacturing PMI stayed stable at 49.0. The domestic scene in New Zealand is another factor behind the need for prudence. The ANZ Business Confidence Index was down to 53.7 from 56.1 in August, while the ANZ Activity Outlook was down to 48.2 from 49.3. This indicates that both measures show a negative change, implying lower business confidence and, hence, an unfavorable domestic economic environment. However, all eyes will be on the Reserve Bank of New Zealand's upcoming monetary policy decision. There is consensus that the Reserve Bank will hike interest rates by 25 basis points, just as in May, when it raised them by the same amount. The market positioning has also changed in light of the RBNZ's hawkish approach. According to TD Securities, the July interest rate hike, which signaled hawkishness, prompted investors to unwind short positions in NZD against the US Dollar and the Australian Dollar. Moreover, it was observed that the economic data from New Zealand were insufficient to refute the RBNZ's guidance on interest rates. Therefore, there is widespread consensus in the market regarding another 25-basis-point hike. But the US Dollar is another key factor working against NZD/USD. The head of the Federal Reserve, Kevin Warsh, made a hawkish statement at the Jackson Hole conference, saying that much more needs to be done if there is to be more progress toward the Fed’s inflation target. It increased market expectations regarding tightening of US monetary policy. After the speech, according to the CME FedWatch tool, the market priced in a 57.5% chance of at least a 25-basis-point hike in the Fed rate at the September 15-16 meeting, up from 35% before his speech.
Technical Analysis The NZD/USD currency pair is currently trading at 0.5910 on the daily timeframe. This indicates an optimistic short-run outlook, as the pair trades above the 50-day Exponential Moving Average (EMA). However, there is short-term selling pressure due to the 9-day EMA. A 54 value of the 14-day RSI indicates buying interest. Still, no overbought scenario, indicating the price has room for buyers to venture higher, provided that price holds above the trend support. The first resistance point is seen above at the nine-day EMA at 0.5930. If there is a successful penetration above this resistance level, there will be a further price rise. Below, support is at the 50-day EMA at 0.5864; if the price falls below this level, it will weaken the bullish trend and leave the pair vulnerable to a correction.
