NZD/USD consolidates daily losses above 0.70, still down more than 100 pips on day

The heavy selling pressure witnessed on the NZD/USD pair eased a little in the NA session as the US Dollar Index struggles to recover above the 93 mark. At the moment, the pair is at 0.7025, losing 125 pips, or 1.75%, on the day.

During the Asian session, the Labour Party in New Zealand announced that it had reached an agreement with the First Party to form a coalition government, forcing the National Party, which won 44.4% of the votes in the election, to become the opposition. The kiwi fell sharply against its peers as the policies offered by the Labour party are thought to have a potential negative impact on the economy. 

Commenting on this development, "b Both Labour and NZ First had campaigned heavily on a pledge to cut immigration.  Ms Ahern’s Labour have proposed cutting net arrivals by up to 30,000 annually. This morning, the Stats NZ population clock was counting 4.83 mln and estimating that the number increases by one person every 4 minutes and 51 seconds. In the year to August 2017 statistics NZ reported that the net gain from immigration rose to 72.1 mln up from 3k y/y.  Since late 2012 there has been a strong uptrend in net immigration into New Zealand and this has created stress most specifically on housing," said Jane Foley, Senior FX Strategist at Rabobank.

• NZD: New regimes - Rabobank

In the meantime, amid a sharp retreat witnessed in the US T-bond yields, the US Dollar Index eased to a new five-day low at 92.90, helping the pair limit its losses. At the moment, the index is quite near the 93 handle, still losing 0.3% on the day.

Although it seems like the sellers are taking a break, the pair is poised for further losses in the near-term as investors are likely to stay away from the kiwi until they get a clear picture of the economic outlook.

Technical outlook

With a decisive break below 0.7000 (psychological level), the pair could extend its downside toward 0.6920 (May 22 low) and 0.6880 (May 19 low). On the upside, resistances align at 0.7100 (psychological level), 0.7150 (200-DMA) and 0.7205 (50-DMA). Despite today's drop, the RSI indicator on the daily graph hasn't reached the oversold area below the 30 mark yet, suggesting that the pair could extend its losses. 

Today's data from the U.S.

• US: Weekly initial claims was 222,000, a decrease of 22,000 from previous week
• Philly Fed: Manufacturing firms reported continued growth in October