NZD/USD Forecast: Kiwi Looks Ready to Break Down Further

The NZD/USD currency pair dropped a bit during the trading session on Friday as we continue to see US dollar strength overall.The job number came out on Friday a little bit hotter than anticipated, but the most important thing to take away from that announcement is that the inflationary picture in the United States is probably going to continue.Because of this, the Federal Reserve is more likely than not going to continue to tight monetary policy, so we should continue to see the US dollar strengthened against the New Zealand dollar, which of course is much more sensitive to commodities than anything else and needs growth to continue to push higher.

The 0.56 level is a major area of support, where we have seen a lot of buyers over the last couple of weeks. If we break down below there then I believe that the New Zealand dollar drops to the $0.55 level rather quickly. Breaking down below that level then opens up a trapdoor that could send the New Zealand dollar much lower, maybe even as low as $0.50 over the longer term. The New Zealand dollar of course needs to see some type of global growth and speculation out there to go higher against the greenback, something that is in short supply at the moment.

What’s particularly telling is that this pair continues to drop, despite the fact that the Royal Bank of New Zealand decided to raise interest rates by 50 basis points the day after the Reserve Bank of Australia raised only 25. A lot of people had anticipated the Kiwis to be a bit timider, but they came through the process just as hawkish as everybody had anticipated previously. Because of this, we had initially tried to break above the 0.58 handle, but we have dropped rather hard from that level. As we close out the week, we are sitting right around the 0.56 level, and that’s an area that I think will attract a certain amount of attention from psychology is concerned. The question now is going to be whether or not we are building up momentum and pressure to cause some type of recovery rally, or are we trying to chip away at a major support level to go lower? I suspect the answer is the latter of the two.

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