USD to NZD Rate Below 0.59 After Lower Economic Projections

The USD to NZD rate remains volatile, with the price gaining around 1 cent earlier this week, but returning below 0.59 yesterday, as risk sentiment turned negative and USD buyers returned, sending NZD/USD toward the support zone at 0.8540-50.

The 0.5850 level, marking the 2024 low, has demonstrated significant strength, rejecting price declines three times, including this week’s recovery above 0.59. Despite a 5-cent drop over the past two months, the broader trend for NZD/USD remains positive. However, sentiment turned bearish after the pair failed to break above 0.6380 resistance in September. Last month’s inability to hold above 0.60 and the subsequent fall below 0.5850 opened the door for further declines.

For much of 2024, NZD/USD has traded within a tight five-cent range. Weak economic figures from New Zealand, in stark contrast to robust U.S. data, have weighed heavily on the currency. Indicators such as rising unemployment and lower inflation expectations reflect diminished inflationary pressures, aligning with the RBNZ’s dovish monetary policy and increasing the likelihood of further currency weakening.

NZD/USD Chart H4 – MAs Keep Pushing the Highs Lower

New Zealand Economic Trend Points Downward

The Reserve Bank of New Zealand’s latest report highlighted a decline in 1-year inflation expectations, now at 2.05%, down from 2.4% in the previous quarter. This drop suggests easing short-term inflationary pressures. Additionally, the country’s Q3 labor market data showed a rise in the unemployment rate to 4.8% from 4.6%, reinforcing the RBNZ’s cautious stance.

With a combination of weaker domestic data and contrasting strength from U.S. economic indicators, the pair remains under pressure, making it vulnerable to further downside moves.

The Treasury of New Zealand to Lower Budgetary and Economic Projections

Reports from New Zealand indicate that the Treasury plans to update its economic and budgetary forecasts due to ongoing declines in productivity. Chief Economic Adviser Dominick Stephens stated that the economic recovery, initially expected to commence by late 2024, is now anticipated to begin later than previously projected.

Challenges in Balancing the Budget

Slower economic growth is compounding the government’s challenges in balancing its budget. Reduced tax revenues are creating additional fiscal strain, even as the government plans to implement spending cuts and austerity measures to address the widening fiscal deficit. The revised forecasts will likely reflect the prolonged economic slowdown and its impact on New Zealand’s fiscal outlook.

NZD/USD Live Chart