0.5650 Area: NZD/USD Price Analysis Highlights Struggle to Clear 100-SMA on H4

NZD/USD extends its advance as the USD weakens, but bullish conviction remains limited.
Last week’s dovish RBNZ pause restrains the NZD ahead of Friday’s closely watched US NFP report.
Conflicting technical signals also call for caution over positioning for further gains.

NZD/USD reaches the 0.5655-0.5660 zone, its highest in over a week. Broad US Dollar (USD) weakness supports the move in Thursday’s early European session. The pair advances for a second consecutive day, extending Wednesday’s recovery from around 0.5575, a three-week low.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Post-election developments push the USD Index (DXY), which measures the Greenback against a currency basket, to its lowest since late September. Following a Democratic sweep in the US midterm elections, concerns have emerged that fiscal gridlock could constrain government spending and slow economic growth. Hopes that the Iran war may end also depress crude oil prices. This eases inflation concerns and puts US bond yields under pressure, further weakening the dollar and lending NZD/USD some support.

At 2.75%, the Official Cash Rate (OCR) was left unchanged last week in a major dovish surprise from the Reserve Bank of New Zealand (RBN). That decision may limit strong follow-through demand for the New Zealand Dollar (NZD). With crucial US monthly employment data due on Friday, traders may also hold back from aggressive directional positions. The US Nonfarm Payrolls (NFP) report, as it is widely known, will be an important driver of USD demand and the NZD/USD pair.

The short-term technical bias remains negative after the post-RBNZ breakdown and the subsequent failure near the 100-period Simple Moving Average (SMA) on the 4-hour chart. Bullish momentum also appears to be cooling: the Relative Strength Index (14) has retreated from recent overbought levels to about 55. Although the Moving Average Convergence Divergence (MACD) histogram remains slightly positive, its flat profile points to waning upward pressure rather than a strong trend.

Before positioning for a continuation of the established decline from August’s monthly swing high, it would therefore be prudent to await a sustained break and acceptance below horizontal support at 0.5580-0.5570. Initial resistance stands at the 100-period SMA near 0.5649, with the 23.6% Fibonacci retracement at 0.5664 next. Only a sustained move through these barriers would open a challenge to the higher Fibonacci resistance levels at 0.5725 (38.2%) and 0.5775 (50%).

(The technical analysis of this story was written with the help of an AI tool. Know more.)

4-hour NZD/USD chart

RBNZ: key questions

The Reserve Bank of New Zealand’s role

As New Zealand’s central bank, the Reserve Bank of New Zealand (RBNZ) has economic objectives of securing and maintaining price stability and supporting maximum sustainable employment. Price stability is achieved when inflation, as measured by the Consumer Price Index (CPI), is within the 1% to 3% range.

Monetary policy and the New Zealand Dollar

Setting the Official Cash Rate (OCR) at a level consistent with the Reserve Bank of New Zealand’s (RBNZ) objectives is the responsibility of its Monetary Policy Committee (MPC). If inflation exceeds the target, the bank seeks to contain it by increasing the OCR. Borrowing then becomes more costly for households and businesses, cooling economic activity. Higher rates generally support the New Zealand Dollar (NZD): the resulting rise in yields makes the country more attractive to investors. Lower rates, by contrast, tend to weaken the NZD.

Employment’s importance to the RBNZ

A tight labour market can drive inflation, making employment an important consideration for the Reserve Bank of New Zealand (RBNZ). Its objective of “maximum sustainable employment” means the greatest use of labour resources that can be maintained over time without accelerating inflation. The bank explains: “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,”

Quantitative Easing (QE) explained

When conditions are extreme, the Reserve Bank of New Zealand (RBNZ) may deploy Quantitative Easing as a monetary policy tool. Under QE, the RBNZ prints domestic currency to purchase assets, usually government or corporate bonds, from banks and other financial institutions. The aim is to expand the domestic money supply and stimulate economic activity. A weaker New Zealand Dollar (NZD) is the usual result. Used as a last resort when interest rate cuts alone are unlikely to meet the central bank’s objectives, QE was deployed by the RBNZ during the Covid-19 pandemic.