NZD to USD: 3 Reasons Why New Zealand Dollar Could Plummet in 2016

New Zealand Dollar Could Plummet in 2016Here’s Why the New Zealand Dollar Could Plummet in 2016

The NZD to USD exchange rate could plummet further. The New Zealand dollar is setting up to disappoint. Don’t be surprised if the “kiwi” is one of the worst performing major currencies in 2016.

When looking at currencies, one phenomenon must be remembered: trends can last for a long time. When you look at the NZD/USD pair, there’s a clear downtrend when looking from a weekly basis perspective. Take a look at the chart below and pay close attention to the black lines.

There’s one thing that’s worth mentioning on the chart above. Notice the channel the NZD/USD pair is trading in? It’s widening. This suggests there could be more volatility going forward. The USD to NZD currency pair may move a bit higher, but the move to the downside could be much bigger and faster.

Now, how low can the New Zealand dollar fall? For this, we must look at the quarterly chart. It seems the exchange rate is in a free-fall. The next support level isn’t until 0.55, roughly 19% lower than it currently trades.

New Zeland Dollar to US Dollar Chart

Chart courtesy of www.StockCharts.com

When you look at New Zealand’s economy, it’s seeing a significant slowdown in its growth rate. Remember: currencies decline in value if the overall economy performs poorly.

New Zealand Dollar Chart

Chart courtesy of www.StockCharts.com

In the fourth quarter of 2014, the annual growth rate of New Zealand’s economy was 3.5%. In the first quarter of 2015, this rate declined to 2.6% and the economy witnessed another decline in the second quarter to 2.4%. Simple math reveals that New Zealand’s economy has slowed down by 1.1% in a matter of just three quarters. As a percentage change, this represents a decline of more than 30%. (Source: “New Zealand GDP Annual Growth Rate,” Trading Economics, last accessed December 15, 2015.)

Looking at another economic indicator, the unemployment rate, it suggests New Zealand is facing headwinds. In the third quarter of 2015, the unemployment rate in the country was at six percent. In the third quarter of 2015, it sat at 5.4%. (Source: “New Zealand Unemployment Rate,” Trading Economics, last accessed December 15, 2015.)

Also, pay attention to what the Reserve Bank of New Zealand is doing. You see, New Zealand’s central bank has been lowering the official cash rate in the country. So far in 2015, the Reserve Bank of New Zealand has lowered its benchmark interest rate four times. The official interest rate stands at 2.5%. (Source: “Official Cash Rate Decisions and Current Rate,” Reserve Bank of New Zealand, last accessed December 15, 2015.)

Know this: if New Zealand’s economy continues to face pressures, this rate could go lower. The official cash rate in New Zealand currently sits at its lowest level since it was introduced.

The NZD/USD Outlook for 2016

The outlook for the New Zealand dollar in 2016 looks dismal. The NZD/USD currency pair is down roughly 12% year-to-date and more of the same could follow in the next year.

It also shouldn’t be forgotten that the interest rates in the U.S. are expected to go higher. This will only add to the declines we have seen in the NZD to USD pair.

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