By Peter Stoneham
The New Zealand dollar has been losing value against the U.S. currency for a number of years and the longer-term technical picture suggests it can continue to fall for some time.
Click here for a more detailed chart.
The decline in the New Zealand dollar — also known as the kiwi — has been driven largely by interest rate differentials. With the U.S. Federal Reserve and other major central banks maintaining higher interest rates than New Zealand, global investors have had little incentive to hold the kiwi, draining demand and pushing the currency lower.
A key feature of the monthly chart is a trend resistance line stretching back to February 2021, drawn from that month's high of 0.7463, according to data supplied by LSEG.
This line acts as a ceiling that the market keeps bumping its head against but cannot break through. Each time the kiwi attempts a recovery, the trendline halts the advance. It did exactly that during an April-May rally and again in early June, reinforcing its importance.
Trend resistance lines like this one are drawn by connecting a series of lower highs on a chart. The pattern tells traders that sellers consistently overpower buyers at these levels, keeping the broader downtrend firmly in place.
With the line currently sitting at 0.5984 and having held firm once more in June, the path of least resistance remains downward. Should the kiwi continue to slide, traders will be watching a cluster of downside targets: 0.5512, 0.5485 and ultimately 0.5469, which were all previous lows.
On the other hand, a monthly close above the trendline would damage the downward trend and possibly negate it.
What the chart shows:
Long-term decline in the New Zealand dollar since February 2021
A trend resistance line has repeatedly capped recovery attempts, most recently in June
Downside targets include 0.5512, 0.5485 and 0.5469
(Daily markets commentary from Reuters analysts on the signals financial charts are sending - and what they might mean.)