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New Zealand Dollar Slide Continues

The New Zealand dollar has extended its losses on Friday, after five straight losing sessions. NZD/USD is currently trading at 0.6823, down 0.45% on the day.

Covid variant weighs on NZ dollar

Risk apprehension is sharply lower in the markets today, as a Covid variant which has spread in South Africa is causing concern around the world. Two cases of the variant were detected in Hong Kong today and it’s a safe bet that it has spread to other regions as well. Investors have responded by dumping risky assets and snapping up safe-havens like the US dollar. This has weighed on the slumping New Zealand dollar, which is down 2.36% this week.

The New Zealand dollar didn’t get any help from the RBNZ, which raised rates by 0.25%, to 0.75%. The central bank has now raised rates for two consecutive months and has signalled that it will continue to raise rates. Nevertheless, there was some disappointment that the bank didn’t show a more aggressive hand and hike rates by 0.50%. The New Zealand dollar tumbled after the decision and lost 1.0% on Wednesday.

Fed likely to increase taper

The Federal Reserve is expected to accelerate the tapering of its pandemic bond purchase programme. The FOMC minutes showed that policy makers are concerned about inflation and stated that if inflation continues to rise, they are willing to consider adjusting bond purchases and raising interest rates.

Goldman Sachs said in a note on Thursday that it expects to Fed to double its taper trim from USD 15 billion to USD 30 billion each month, starting in January. This means that the programme will be wound up by March instead of June. An earlier end to the bond purchase scheme means that the Fed can look at raising rates sooner, which is bullish for the US dollar.

NZD/USD Technical

  • There is resistance at 0.6958 and 0.7059
  • NZD/USD is down sharply and continues to break below support levels. There is support at 0.6857, which has held since late August. Below, 0.6747 is a monthly support level

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