NZD/USD Analysis: Attempted Recovery from a 27-Month Low

The New Zealand dollar is making efforts to recover after touching a 27-month low against the US dollar. This comes following the release of key labour market data from New Zealand, which delivered disappointing results and added to concerns about the country’s economic health.

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Labour Market Weakens

In Q4 2024, New Zealand’s unemployment rate increased to 5.1%, the highest level recorded since Q3 2020. This spike is a strong indication of a slowing economy and has heightened expectations that the Reserve Bank of New Zealand (RBNZ) will announce a rate cut during its upcoming policy meeting in late February.

Although the labour data was negative, markets had largely anticipated these results, so their immediate impact on the NZD/USD pair has been limited. However, external risks, including the ongoing US-China trade war, could amplify downward pressure on the New Zealand dollar.

US-China Trade War Adds Pressure

A significant uncertainty weighing on both the New Zealand and Australian dollars is the ongoing trade tension between the US and China, two of their key trading partners. President Donald Trump recently stated that he is “in no rush” to meet with Chinese President Xi Jinping, following China’s retaliation against US-imposed tariffs. The escalation of these tensions could further disrupt trade, harming New Zealand’s export-dependent economy and its currency.

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Technical Analysis: Key Levels and Momentum

The NZD/USD pair remains trapped in a persistent downward trend (indicated by the descending red channel on the chart). However, recent price action shows that buyers are defending key levels and could be preparing for a rebound:

• Support at 0.555: This level has been tested twice in 2025 and previously served as a critical support zone in 2022. Buyers have repeatedly stepped in at this point, preventing a further decline.
• Upper Boundary Resistance: The current price is approaching the upper boundary of the downward channel. A successful breakout above this line could signal a short-term recovery.

Outlook: What to Watch

The trajectory of the NZD/USD pair in the coming weeks will depend on several factors:

1. Central Bank Policy: A rate cut by the RBNZ, as widely expected, could limit any recovery for the NZD. However, any signals of hesitation from policymakers could boost bullish sentiment.
2. US-China Trade Developments: Continued tensions or resolutions on tariffs will have a major impact, as New Zealand’s exports are vulnerable to trade disruptions.
3. US Dollar Strength: The broader strength of the US dollar, driven by robust US economic performance, remains a dominant factor.

Potential Scenarios:

• Bullish Case: A breakout above the upper boundary of the downward channel could see the pair move higher, with the next resistance levels around 0.575 and 0.590.
• Bearish Case: If the downward trend continues, the pair could retest the critical support at 0.555. A break below this level would likely trigger further declines.

In summary, while there is potential for a short-term recovery, risks remain tilted to the downside as global factors and local economic challenges continue to weigh on the New Zealand dollar. Traders should closely monitor updates from central banks and any shifts in US-China relations, as these will be critical drivers of future price action.