The USD/NZD pair has been in a consolidation phase, as it braces for the upcoming US Dollar and NZD release after its historic retreat from recent highs. The question is will this move be enough to halt the USD price appreciation against the NZD which may have already picked up momentum. The answer could be no or perhaps even slightly yes depending on how the latest global data and economic data impacts global markets. So can the NZD be supported by a weaker US dollar, which would imply an eventual break out of this new resistance zone.
The answer depends on how the latest economic data impacting NZD and the US Dollar affects global markets. If there is a sizable upward trend in the NZD, which is being driven by higher commodity and energy prices, as well as more positive US interest rate figures, then the NZD could likely continue to make headway against the USD. In this scenario the NZD may decide to break out of this downward trend and push the USD back to its prior range before reversing course again. A weaker dollar would indicate that there are currently greater risks to the upside in the NZD and this could result in a short squeeze in the share price during which sellers attempt to unload shares to salvage any gains into the dollar. Such a scenario would temporarily support the NZD and may result in continued strength in the market.
Should the US Dollar to resume its recent uptrend and the NZD resume a downward trend, then this would pose a much more significant risk to the NZD and could result in a significant retracement in the share price. Currently the NZD is in a consolidation phase where the NZD has chosen to support the dollar rather than providing an alternative. If there is a significant amount of weakness built up in the market then this may mean that weakness in the New Zealand economy will be even greater, and the NZD could weaken further against the USD. If this were to occur, the NZD would likely suffer a swift replacement from the current levels, as its particular weak spot was aggravated by the relatively strong USD. In this scenario, the NZD is seen as being vulnerable to continued pressure from the US Dollar and investors will need to take the above-mentioned factors into consideration when determining whether or not the NZD should be watched closely in relation to the USD.
Should the NZD continue on its current path and reverse direction, then it is likely to experience a marked weakening in its currency value against the USD. This would have the NZD potentially suffer a significant loss compared to current levels, although this may be offset by the strong economic outlook for New Zealand (albeit gradually improving). If the weakness persists, then it is likely that the NZD will begin a period of depreciation against the USD. The market will need to monitor the trends in the New Zealand economy carefully as the potential for a correction is high. Should the NZD resume its current trend, then the NZD is likely to make a recovery from its recent low and remain stronger versus the USD over time.
If the NZD continues to track along a new trend, then an increased pressure on the New Zealand economy will be inevitable. In addition to this, the NZD may face a tougher time finding a trading solution due to the constraints in its trading options. With these factors in mind, the NZD may find itself in a precarious position over the next few months. Should the above mentioned factors become a hindrance, then the NZD may find itself trading against the USD in what could prove to be a difficult situation for traders. Should the NZD continue on its current path, then there is a strong chance of the New Zealand economy suffering a severe recession. As the trade flow becomes disconnected, then unemployment levels are likely to increase, leading to more sectors of the economy contracting.
As a result, the availability of bank financing for businesses will be reduced, leading to a reduction in the amount of investment capital available. This would potentially lead to a decrease in infrastructure spending. In addition, higher interest rates may put a crimp in the ability of small businesses to borrow large amounts of finance from the banking sector. The high level of interest that is charged against commercial loans could act as a restraint on the growth of the NZD. It may even result in the removal of a key economic stimulant such as the interest rates and subsidies that are enjoyed by the banks and other financial institutions.
As previously stated, the status of the NZD will be closely watched by international market participants. Should the NZD weaken against most major currencies, the effects on the New Zealand economy will be felt by its trading partners. This may reduce the level of exports and imports, reducing the volume of New Zealand goods entering the global marketplace. Should trade flows are restricted because of the strength of the NZD, the resultant effect is likely to be lower