Insights 
VT 
The NZD/USD has seen a decline to near 0.5725 as the New Zealand Dollar underperforms. This slump aligns with expectations of further interest rate reductions by the Reserve Bank of New Zealand, aimed at managing inflation risks. The US Dollar benefits from easing trade tensions with China.
During the Asian trading session, NZD/USD fell by 0.27% near 0.5725. A table shows the New Zealand Dollar’s weakening against major currencies, particularly underperforming against the US Dollar. Stats New Zealand reported a 3% annual rise in Consumer Price Index, mainly due to temporary influences.
Monetary Policy Considerations
The ongoing cooling in the underlying price trend suggests a possibility for further monetary policy easing. The NZD/USD remains around 0.5740, its lowest in over six months, with EMAs on a downward trend. The 14-day RSI stays below 40.00, signalling bearish momentum.
The pair may slide towards 0.5628 if it falls below the October 14 low of 0.5682. Alternatively, breaking above 0.6000 could see it climb towards the June 19 high of 0.6040. This week, attention is on delayed US CPI data, which could impact trading dynamics.
The Consumer Price Index, indicative of inflation, influences the RBNZ’s interest rate decisions, impacting NZD valuation.
The bearish outlook for the NZD/USD pair is solidifying, presenting clear opportunities for the coming weeks. We see a significant divergence in central bank policy, as market pricing now implies over a 75% probability of a Reserve Bank of New Zealand rate cut in November. This contrasts sharply with the US, where strong retail sales data from last week has pushed the odds of a Federal Reserve rate cut this year below 10%.
Technical Analysis and Strategic Positions
While headline inflation in New Zealand recently rose to 3%, we recognize this was driven by one-off items like land taxes and does not change the underlying cooling trend. The latest business confidence surveys from earlier in October support this view, showing a decline in sentiment which adds pressure on the RBNZ to act. This reinforces the case for further interest rate reductions to stimulate the economy.
From a technical standpoint, the downward momentum is strong, with all key moving averages sloping downwards. A break below the recent low of 0.5682 should be seen as a key signal to target further downside. The next logical support levels we are watching are the low we saw back in April of 0.5628 and then the 0.5600 psychological level.
For derivative traders, this environment suggests that buying put options to profit from a continued fall is a straightforward strategy. We could also consider establishing bearish call spreads to collect premium while defining our risk, especially with volatility in mind. These positions would capitalize on a move towards the 0.5600 level over the next few weeks.
The primary risk to this bearish outlook in the immediate term is this Friday’s delayed US Consumer Price Index data. A surprisingly weak inflation reading from the US could temporarily weaken the dollar and cause a sharp rebound in the pair. Therefore, we must manage our positions carefully heading into that release.
