NZD/USD analysis: How low can the New Zealand dollar get?

The kiwi has imploded and crashed to the lowest level since October 2022. The NZD/USD pair fell to a low of 0.5556 on Friday after the US released relatively strong nonfarm payrolls (NFP) data. It has crashed by over 25% from its 2021 highs and by 13% from its 2024 highs. 

NZD/USD falls as the Fed remains hawkish

The NZD/USD exchange rate has continued its downward trend after the Federal Reserve turned highly hawkish. 

Minutes released earlier this month showed that most officials have continued to worry about inflation, which has remained stubbornly above the 2% target for a long time. 

In that meeting, the Fed slashed interest rates by 0.25% and hinted that it would deliver just two interest rate cuts this year. 

These odds increased on Friday when the Bureau of Labor Statistics (BLS) released the latest nonfarm payroll jobs data. The data showed that the US inflation rate dropped to 4.1% as the economy added over 260k jobs.

The next important NZD/USD data to watch will be published on Wednesday when the US publishes its latest inflation report. Economists polled by Reuters expect the data to show that the headline Consumer Price Index (CPI) rose from 2.7% to 2.9% in December. They also expect the core CPI, excluding volatile food and energy prices, to remain at 3.3%.

The Fed will, therefore, maintain its hawkish view if these numbers are correct since they will signal that prices remain significantly high. 

There are other inflationary risks ahead. Donald Trump has pledged to impose new and bigger tariffs from top countries. On top of this, he wants to deport millions of undocumented migrants, many who work in industries like construction and agriculture. 

At the same time, the ongoing fires in Los Angeles will worsen inflation as reconstruction starts soon.

All these factors explain why US bond yields have rocketed to the highest level in two years, with the 30-year moving to 5%. Also, the US dollar index has soared in the last six weeks and is now hovering at $110, its highest level since November 2022.

New Zealand economic woes continue

The NZD/USD pair has dropped due to the country’s ongoing economic weakness and rising hopes that the RBNZ will continue cutting interest rates.

The most recent economic data showed that the headline Consumer Price Index (CPI) dropped to 2.2% in the third quarter, down from the pandemic high of over 7%.

More data showed that the unemployment rate rose from 4.6% in Q2 to 4.8% in Q3, and up from 4.0% in Q4’23. 

Therefore, the RBNZ has continued to cut interest rates, and analysts expect the trend to continue in the coming months. It slashed them from last year’s high of 5.50% to the current 4.25%. As such, the local currency has fallen as the divergence between the Fed and the RBNZ continues.

NZD/USD technical analysis

NZD/USD chart by TradingView

The weekly chart shows that the NZD/USD exchange rate continued its strong downtrend this year. It has fallen in the last five weeks and is now at the lowest level in over two years.

The pair crashed below the key support at 0.5771, its lowest point in October 2023, and the neckline of the triple-top pattern. It has moved below the 50-week and 25-week Exponential Moving Averages (EMA).

The MACD indicator has moved below the zero line, while the Relative Strength Index (RSI0 has dropped below the oversold level. 

Therefore, the pair will likely continue falling as sellers target the next key support at 0.5000 in the next few weeks.

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