The New Zealand Dollar was the best-performing major currency for November so why has it been so strong?  

RBNZ Hawkish

"Unlike some of the other central banks that we cover there hasn’t been a dovish pivot from the RBNZ. (Kristina Clifton Commonwealth Bank of Australia.) the rate is at 4.25% which is the best interest rate to be found amongst G-7 currencies.

Optimism About China and Risk on Supporting the NZD

The NZD has also got a boost from the view that China will relax COVID restrictions and the Chinese economy will recover going forward which will of course help New Zealand as its biggest trading partner is China. In addition we have had stock market strength which has also helped the Kiwi appreciate.

Market Views USD Uptrend as Over

Finally, the market also thinks the USD up trend is at an end: "Amid the ebb and flow, there is greater confidence in the market that the USD has peaked, and that might keep the NZD [NZD/USD] from slipping back below 0.60, especially if the RBNZ’s tone remains hawkish, as we expect" (David Croy ANZ.)

Major Correction Coming in NZD/USD

The good news is in the price in our view and with speculators heavily long we expect a major correction in NZD/USD:

The market is assuming the RBNZ will be hawkish going forward but with a global economy slowing the RBNZ will be cautious – the optimism about China’s economy is not supported by the facts as we pointed out in an article we wrote earlier today on USD/CNH. We expect the economy to continue to contract and have a recession which is heavily bearish for the NZD.

In terms of the USD, it's had a correction without a big change in the fundamentals which is probably due to the large USD position built up this year – the idea the Fed will turn dovish and cut rates soon is not supported by the facts. The Fed will in our view hold rates higher for longer than the market expects which is bullish. Finally, the global economy is moving into a recession which is clear from global PMI's which is bullish the USD on its reserve currency status. 

Technical Analysis

We have a strong up trend but we are now coming into major resistance on the monthly chart and expect a correction. Key levels of support and resistance to look out for on both the monthly and daily charts are below with our comments.