New Zealand dollar looking for its footing

The New Zealand dollar has reversed directions in the Thursday session and is in positive territory. Currently, NZD/USD is trading at 0.7209, up 0.34% on the day.

NZ dollar trendless

The New Zealand dollar has bounced around all week, with the currency posting gains one day, only to give them up on the next day. This lack of a trend, which has characterized the New Year, is in sharp contrast to what we saw late in 2020. Then New Zealand dollar pummelled its US cousin in the final two months of the year, rising by 9.4 per cent. Cyclical currencies such as the kiwi have been outperformers against a sagging US dollar. A resurgence in Covid-19, a dovish Federal Reserve and a massive stimulus package of all weighed on the US dollar. However, if the US can tame Covid in 2021 and the economy shifts into fast gear, the US dollar could make up some ground against the New Zealand dollar. At the same time, a global recovery in 2021 would be positive news for New Zealand’s export-reliant economy, which could boost the kiwi.

Is US inflation on the way up?

Headline inflation in the US rose to 0.4% in December, matching the forecast. Importantly, this was the highest level since August and has raised expectations that inflation is finally on the way up. On an annual basis, CPI showed a gain of 1.3%, well below the Federal Reserve target of two percent. Core CPI ticked lower to 0.1%, down from 0.2% in the previous release. The shutdown of the US economy due to Covid-19 sent prices sharply lower, and with the US economy expected to show a strong recovery this year, some analysts are projecting inflation as high as 3 percent. Inflation has been dormant for quite some time, but that could change in 2021.

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NZD/USD Technical

• NZD/USD is facing weak resistance at 0.7223. This is followed by resistance at 0.7268
• There is support at 0.7150. Below, we find support at 0.7122
• The pair continues to put downward pressure on the 20-day MA line. If the pair can close below this line, that would be a bearish technical signal.

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