The New Zealand dollar has broken its mid-term uptrend, and the technical picture has deteriorated dramatically after last week’s plunge. Moreover, after a short-lived recovery at the start of this week, the kiwi resumed the decline on Tuesday, with the pair threatening the 0.6320 lows again.
The latest bearish driver for the NZDUSD pair was the report that pointed to further decline in domestic inflation expectations. In particular, the two-year inflation expectations fell to 1.80% for the fourth quarter versus 1.85% expected. One-year expectations came in at 1.66%, while the last inflation rate came in at 1.50%, down from 1.9% at the start of this year.
The dismal numbers in turn fueled a rise in the odds of a rate cut by RBNZ during tomorrow’s meeting. On Monday, the odds were around 60% and now exceed the 75% mark. Also, the chance of a rate cut is increasing as the central bank will likely try to avoid the currency strengthening in order not to dramatize the inflation outlook further.
NZDUSD rally stalled in November, with the pair now threatening long-term lows around 0.62 in case of a break below the 0.6320 intermediate support zone. By the way, should the kiwi get back under 0.63, the selling pressure will likely increase substantially, with the downside pressure prevailing as long as the New Zealand dollar remains below the 100-DMA which lies around 0.6450.
At the same time, there is a possibility that the kiwi will gain should the central bank refrain from cutting rates. After today’s data, such a scenario would be a surprise for investors, so market reaction to such developments may be fairly aggressive.
In the short term, the pair will be driven by sentiment around the US dollar. Today, traders are focused on the upcoming Trump’s appearance at the Economic Club of New York. Should the US leader set a positive tone in the markets, the NZDUSD pair could trim intraday losses later today, as the New Zealand currency is sensitive to the dynamics in global risk sentiment.