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2-Year Low in NZDUSD Rate, As Chinese Consumers Weaken Further

Skerdian Meta•Monday, December 16, 2024•2 min read

NZDUSD tested the 2023 low in late November but bounced off that support, however, the pair resumed the downtrend and closed at a 2-year low last week after breaking last year’s low.

China's 2nd stimulus measures disappointed markets again
China’s 2nd stimulus measures disappointed markets again

The NZD/USD exchange rate has been in steady decline since early October, losing over 6 cents due to the ongoing strength of the US dollar. While the pair briefly recovered from the 2023 support zone at 0.58 following the Reserve Bank of New Zealand’s (RBNZ) decision to cut interest rates by 50 basis points, this rebound proved short-lived.

NZD/USD Chart Weekly – The 2023 Support has Been Broken

The temporary rise above 0.59 was largely driven by profit-taking on the US dollar and month-end flows linked to the Thanksgiving period. However, the recovery lacked momentum, and the bearish trend reasserted itself, driving the price below the 2023 low. The pair closed at the lows, a bearish signal that points to further declines, potentially targeting the 2022 low at 0.55.

New Zealand BusinessNZ Services Index for November

  • November Performance Services Index (PSI): 49.5 points
  • October (Revised): 46.2 points
  • Significance: November’s figure marks the highest level since February 2024.
  • Key Sub-Indices:
    • Activity/Sales and New Orders/Business also reached their highest activity levels since February.

Commentary from RBNZ Senior Economist Doug Steel:

  • The November results reflect improvement, though they serve as an example of conditions improving before potentially worsening.
  • Despite the upward trend, the PSI remains below its long-term average of 53.1, suggesting the sector is not yet on solid ground. This leaves commodity dollars such as the AUD and NZD vulnerable.

New Zealand Food Price Index (November)

  • November Change: -0.1%
  • October Change: -0.9%
  • Observation: The food price index continued to show a modest decline, although at a slower pace compared to October.

The Retail Sales report released early this morning from China showed yet another month of slowing down, confirming the weakness for the Chinese consumer. Manufacturing activity grew slightly but is was mainly due to the tsimulus measures.

China Industrial Production and Retail Sales Report for November

  • China Retail Sales for November:
    • Current: +3.0% y/y
    • Expected: +4.6% y/y
    • Previous: +4.8% y/y (October)
    • Retail sales growth for November fell short of expectations, slowing compared to the previous month, reflecting a more subdued consumer spending environment.
  • China Industrial Production for November:
    • Current: +5.4% y/y
    • Expected: +5.4% y/y
    • Previous: +5.3% y/y
    • Industrial production met expectations, with a slight improvement over the previous month, signaling continued growth in manufacturing and production activities.
  • China Fixed Asset Investment for January-November:
    • Current: +3.3% y/y
    • Expected: +3.5% y/y
    • Previous: +3.4% y/y
    • Fixed asset investment growth was slightly lower than expected, showing a modest increase in capital expenditures, although still maintaining a positive trend.
  • China Unemployment Rate for November:
    • Current: 5.0%
    • Expected: 5.0%
    • Previous: 5.0%
    • The unemployment rate remained steady at 5.0%, in line with expectations, indicating stable employment conditions despite economic challenges.

With the risk of CPI deflation and sluggish domestic demand, stimulus aimed at boosting production may not be the best approach. Adding more supply to a weak market is likely to depress price growth further. However, industrial production has seen a 5.4% year-over-year increase, showing improvement from October’s performance.

China’s stats bureau Comments

  • China’s economy is showing continued positive trends.
  • The external economic environment is becoming increasingly complex.
  • Domestic demand is still lacking in strength.
  • Some businesses are encountering operational challenges.
  • A more solid foundation is needed for lasting economic recovery.

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ABOUT THE AUTHOR See More
Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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