New Zealand Dollar Reverses Gains After PBOC Move; NZD/USD, AUD/NZD, GBP/NZD Setups

NZD/USD, AUD/NZD, GBP/NZD – Outlook:

• China cut its 1-year benchmark lending rate but left is 5-year rate unchanged.
• NZD gave up early gains, with NZD/USD testing key support.
• What is the outlook for NZD/USD, GBP/NZD, and AUD/NZD?

The New Zealand dollar gave up early gains against its peers after China cut its one-year benchmark lending rate but left its five-year rate unchanged.

The one-year benchmark lending rate was cut by 10 basis points, while the five-year rate was left unchanged, contrary to expectations for 15 basis-point cuts to both. Over the weekend, China pledged to coordinate financial support to resolve local government debt problems.

Local government finances have worsened due to the prolonged weakness in the property sector, causing a credit crunch for a number of developers. Last week, China unexpectedly lowered key policy rates for the second time in three months in a bid to revive the faltering post-Covid economic recovery, rising deflation risks, and tightening credit conditions.

NZD/USD Daily Chart

Chart Created Using TradingView

Beijing has announced a series of measures in recent months to cushion some of the downside risks to the economy, including cuts in key lending benchmarks, targeted measures toward the property sector aimed at the supply side, and signaled the end of the years-long crackdown on the technology sector. Many are awaiting additional measures for the struggling property sector addressing the demand side and infrastructure. China is New Zealand’s largest trading partner, and any improvement in China’s growth prospects bodes well for NZD.

NZD has been underperforming against some of its amid deteriorating NZ economic growth outlook for the current year and the belief that NZ interest rates have peaked. Last week, the Reserve Bank of New Zealand (RBNZ) kept its cash rate steady, as expected, but slightly pushed out when it expects to start cutting interest rates to 2025.

NZD/USD: At the lower edge of the support

On technical charts, NZD/USD looks oversold as it tests support on a downtrend line from March, slightly above the bottom end of a downtrend channel from the beginning of the year. There is no sign of reversal yet, and NZD/USD would need to rise above the end-June low of 0.6050 for the immediate downward pressure to ease.

GBP/NZD Monthly Chart

Chart Created Using TradingView

GBP/NZD: Testing a tough barrier

GBP/NZD is testing a key converged hurdle at 2.10-2.20, including the 200-month moving average, coinciding with a downtrend line from 2007, and the 2020 high of 2.18. This resistance is very important, and a decisive break above could clear the path toward the 2015 high of 2.46.

AUD/NZD Weekly Chart

Chart Created Using TradingView

AUD/NZD: Well within the range

AUD/NZD continues to trade sideways, but well within the lower edge of a rising pitchfork channel from last year. The broader range established is 1.05-1.11, but most recently the range has narrowed to 1.07-1.09. A break above 1.11 or a break below 1.05 is needed for AUD/NZD to start trending.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish