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% from a year earlier, as reported by the National Bureau of Statistics, fell short of the estimated 1.5% and was lower than the previous month's 1.0% growth. Industrial Production, which rose 4.5% YoY in July, also missed expectations, marking the first decline in three months. These economic indicators suggest a loss of momentum in China's economy, which, as a major trading partner of New Zealand, has led to a downward pressure on the Kiwi.
However, there are some countervailing factors at play. Lower bets for a US Federal Reserve (Fed) rate hike could undermine the Greenback and act as a tailwind for the NZD/USD pair. Markets are now pricing in a September quarter-point hike, with a near-65% chance of a hold, after softer consumer price inflation and weaker retail sales. This shift in expectations could potentially offset the negative impact of China's economic slowdown on the NZD.
Additionally, the Reserve Bank of New Zealand (RBNZ) is expected to pause after its July hike, which could further support the Kiwi. Commerzbank's Volkmar Baur notes that the RBNZ's next monetary policy meeting is scheduled in about two weeks, and the softer inflation indicators released this morning suggest that it is unlikely to raise interest rates for a second consecutive time. While the domestic economy may be weak, ongoing Middle East risks could keep the RBNZ's tone hawkish, offering some near-term support to the NZD.
From a technical analysis perspective, the NZD/USD pair holds a constructive bullish bias, with the spot remaining above both the 100-day moving average and the Bollinger middle band. The pair is approaching the Bollinger upper band, which caps the immediate topside. The Relative Strength Index (14) is around 61, indicating bullish but not overbought territory, suggesting that buying pressure persists yet may slow as price nears overhead supply. On the downside, initial support is offered by the Bollinger middle band at 0.5855, with the 100-day moving average at 0.5830 providing additional support.
In conclusion, the New Zealand Dollar's decline below 0.5900 is primarily driven by China's economic slowdown, but countervailing factors such as lower bets for a Fed rate hike and the RBNZ's pause could potentially offset this negative impact. The technical analysis suggests that the NZD/USD pair is in a constructive bullish bias, with immediate support at 0.5855 and 0.5830. However, the longer-term outlook remains uncertain, with the domestic economy's weakness and ongoing Middle East risks weighing on the Kiwi.
