NZDUSD Slides Further on Fed Tapering Concerns and Coronavirus Woes

19 Aug 2021

NZDUSD slid to a nine-month low after the release of FOMC minutes on Wednesday, 18 August 2021. Minutes from the July meeting extended losses from the RBNZ’s decision to keep Official Cash Rate (OCR) unchanged. Snap COVID-19 lockdowns in New Zealand also weighed on the pair.

Despite unchanged OCR by RBNZ, market remains hopeful

New Zealand’s Producer Price Index (PPI) input rose 3% in the second quarter which surpassed the market expectation of just 0.5%. The rapid rise in the PPI signals escalating price pressure in the country which had shifted market consensus towards a hawkish monetary policy. In Wednesday’s announcement, the Reserve Bank of New Zealand (RBNZ) maintained the OCR at 0.25%, lower than the market expectation of 0.50%, mainly due to COVID-19 concerns in the country.

The release of the neutral RBNZ interest rate decision saw a steep decline in the NZDUSD. However, losses from the announcement was rapidly recovered when RBNZ Governor Adrian Orr mentioned that they will be “keeping rates at 0.25% ‘for now’” at a press conference, leaving the door open for a possible rate hike in the near future.

Overall, the market is expecting a rate hike this year as they believe the surge of COVID-19 cases is just a temporary hiccup and would not sway the central bank from its tightening path.

Coronavirus woes

First local COVID-19 infection in New Zealand in six months sent the nation into a 3-day lockdown. At the time of writing, there has been a total of 7 confirmed cases which are linked to the original delta variant infection. Models predict that case numbers in the country could rise to between 50 and 100 cases. Markets will pay close attention to the covid-19 development in New Zealand as it will be an important driver for its currency.

Hawkish Fed

The US dollar gained strength against the Kiwi after minutes from the July FOMC meeting showed that the Fed is in discussion to start tapering the bond purchase program before 2022. Fed officials widely concluded that they had achieved their inflation goal while still needing improvements on maximum employment to reach the Fed’s standard of “substantial further progress”.

Technical Analysis

NZDUSD has broken down from a descending triangle formation. Relative Strength Index (RSI) paints a bearish picture after being rejected from neutrality area at 50. We hold a bearish bias view on the pair and we would set our price target to resistance-turned-support level around 0.67831. If the price breaks through this support, 0.6718 will serve as the next support level. In the alternative scenario where the pair rebounds on fresh impulses, the pair will be met with resistance at 0.6946.

Key events to watch in the coming week:

Monday, 23 August

USD – Chicago Fed National Activity Index (Jul), Markit Manufacturing PMI, Markit Services PMI, Markit PMI Composite (Aug)

Tuesday, 24 August

  • NZD – Retail Sales (Q2)
  • USD – New Home Sales (MoM) (Jul)

Wednesday, 25 August

  • NZD – Trade Balance (YoY)(Jul), Exports (Jul), Imports (Jul)
  • USD – Durable Goods Orders (Jul), Nondefense Capital Goods Orders ex Aircraft (Jul)

Thursday, 26 August

USD – Gross Domestic Product Annualized (Q2)

Friday, 27 August

USD – Michigan Consumer Sentiment Index (Aug)

Why trade on Phillip MT5?

Trade Forex, Gold, and CFDs (Shares, Indices, Cryptocurrency, Oil, and more) at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Download Trading Central’s Market Buzz for updates on more topics.

What’s more? Phillip MT5 is now supported on Mac OS! To install, simply download the file below and complete a simple installation process.

An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.


Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

More Market Trends

AUDUSD gains from Wednesday’s CPI data was erased when the latest PPI report hinted that inflation may not be over just yet. Extended lockdowns in

Read More >

Gain exposure to the US technology sector at zero commission on Phillip MetaTrader 5

Read More >

After surging briefly from the disappointing US Automatic Data Processing (ADP) jobs report released on Wednesday, the EURUSD currency pair failed to sustain the level

Read More >