The NZD/USD price rose to a 20-month high as traders responded to recent New Zealand retail sales figures.
The data showed that electronic sales rose by an annual rate of 8.2% in October.
These figures came one day before the RBNZ interest rate decision.
The NZD/USD rose 0.15% as traders responded to the impressive retail sales figures and the ongoing meeting of the Reserve Bank of New Zealand (RBNZ). It is trading at 0.6830, down a few pips from yesterday’s high of 0.6853.
NZD/USD rises before the RBNZ decision
New Zealand retail sales recover
In October, New Zealand switched to Covid alert level 1 as the number of new infections decreased. This drove most people in the country into shopping malls and restaurants. According to the Bureau of Statistics, electronic sales rose 8.8% in October compared to 5.4% the previous month. This brought the annualized growth rate to 8.2%, the highest level since August of this year.
They cited impressive spending in restaurants, cafes and snack bars as the reason for the rally. Spending in these businesses increased by N$79 million in October, the highest increase in over 20 years. However, spending in hotels and motels fell by N$46 million due to the lack of international visitors. The office said:
“Auckland reduced to COVID 19 alert level 1 on October 8, easing previous restrictions on social gatherings. This meant that more people were able to gather for events and celebrations after restrictions on gatherings had been imposed in previous months.
Meanwhile, the virus has prompted people to spend more on consumer goods, which has increased by N$244 million. This increase was driven by a N$138 million increase in furniture, electrical and hardware retailing.
While retail sales increased in most industries, fuel and non-retail sales declined in October. Both fell N$65 million, while non-retail sales were down N$244 million.
RBNZ record decision imminent
The New Zealand retail sales figures came as RBNZ officials began their monetary policy meeting. Analysts interviewed by Reuters predict that the bank will leave interest rates unchanged at 0.25% at this meeting.
They also predict that the bank will introduce a financing program that could amount to half of the current N$100 billion quantitative easing program.
Most importantly, the governor could give the bank a guide for negative interest rates. In fact, analysts are forecasting a 50 basis point cut next year.
These measures are necessary to cushion the economy from the effects of the pandemic. The reason for this is that although the country has managed to contain the disease, it still faces challenges due to the large tourism industry.
NZD/USD technical outlook
Technical Table NZD/USD
On the weekly chart below, we can see that the NZD/USD has been in a strong upward trend since March when it dropped to a low of 0.5466. Today the pair is trading near its highest point since March 2019, and has also moved above the 50-day and 25-day exponential moving averages.
Most importantly, however, it has crossed the important 38.2% Fibonacci retracement level, indicating that the bullish move has taken hold. Therefore, the next target to watch is the 50% retracement level at 0.7152. Read our comprehensive overview of the best brokers for forex spread betting here.