Trading NZD/USD As New Zealand Placed In Lockdown

The NZD/USD pair is gradually approaching the psychological resistance of 0.70. Apart from technical factors that signaled a high likelihood of a correction after a major sell-off last week, the strong data provides additional support to the New Zealand dollar.

According to Stats NZ, retail sales rose 3.3% in the second quarter of 2021, following a 2.8% increase in Q1. Analysts had expected consumer activity to increase by 2%. Retail Sales ex Autos rose an impressive 33.3% in 2Q from the previous 6.8%. Despite these optimistic reports, we shouldn't forget that the New Zealand economy had not yet faced another outbreak of coronavirus infection in the second quarter, which forced the authorities to take drastic restrictive measures.

For almost an entire last year, the New Zealand authorities successfully kept the spread of the coronavirus at bay. The country was considered among the least affected by the pandemic. Since the beginning of the month, the number of people infected by the new Delta variant began to rise sharply. On Tuesday, New Zealand recorded its highest increase in COVID-19 cases since April 2020. Given its zero-tolerance policy for COVID-19, the New Zealand government has introduced a nationwide level 4 lockdown, closing schools, offices and all public facilities.

According to the authorities, fast response in the early stages is the best tool for stopping the spread of the coronavirus. On Monday, New Zealand Prime Minister Jacinda Ardern extended the nationwide lockdown until Friday. So far, this hasn't affected the economy in any way. However, if the restrictions are kept in place until the end of the month, economic indicators may start to lag, causing the national currency to depreciate. It should be noted that the deterioration of the epidemiological situation in the country has already become the reason for a radical revision of the Reserve Bank of New Zealand stance regarding the timing of its first rate hike. As the country was put into a COVID-19 lockdown following the outbreak, the RBNZ decided to delay raising rates and removing stimulus. As a result, the New Zealand dollar has lost some of the support that came from expectations that the RBNZ would be the first regulator among developed countries to tighten its monetary policy.

In addition to the outbreak risks, the strengthening of the US dollar can also put some pressure on NZD/USD. Investors are looking forward to the upcoming economic symposium in Jackson Hole, where US Federal Reserve Chairman Jerome Powell may reveal the regulator's plans to taper economic stimulus. Thus, if the American regulator announces its plans to wind down quantitative easing, the NZD/USD pair may resume its decline, with 0.65 being the nearest target.