NZD/USD ticks down to 0.6650 area, weighed by yuan’s sell-off

• The New Zealand dollar opens the week on a weak note and pulls back to 0.6500 area.
• Yuan's sell-off and RBNZ's monetary policy expectations hurt the NZD.
• NZD/USD aiming to 0.6500 in 1 to 3 months – Rabobank.

The New Zealand dollar has opened the week on a slightly weaker tone after the sharp rebound seen last Friday. The kiwi has pulled back from 0.6675 highs against the US dollar,  to consolidate around 0.6650 for most of the day.

The Chinese central bank and the RBNZ hurt the kiwi

The Chinese yuan’s decline has weighed on NZD demand. The People’s Bank of China rattled the markets last weekend after its decision to remove the reserve requirement ratio for yuan forward settlement in an attempt to stem the renminbi's appreciation. The PBoC decision hit the yuan and has pulled the Chinese proxies NZD and AUD lower across the board.

Furthermore, market speculation about the possibility that the RBNZ might introduce negative rates to help New Zealand's economy to recover from the coronavirus pandemic is holding down kiwi longs.

NZD/USD aiming to 0.65 in 1 to 3 months – Rabobank

From a wider perspective, the FX strategy team at Rabobank sees the pair depreciating towards 0.6500 over the next months: “Given the second wave of covid-19 underway in Europe and parts of the US, it is likely that border restriction will remain in place for some time yet. In view of the RBNZ dovish policy stance, we see USD/NZD at 0.65 on a 1 to 3 month view.”

NZD/USD technical levels to watch