New Zealand Dollar retreats toward 17-month low on Oil-driven risk aversion

• The New Zealand Dollar declines by 0.23% on Monday, trading around 0.5600, near its lowest level in 17 months.
• Rising Oil prices and escalating tensions in the Middle East weigh on risk appetite.
• The US Dollar regains some ground despite deteriorating US consumer sentiment.

NZD/USD declines by 0.23% on Monday, trading around 0.5600 at the time of writing, as the New Zealand Dollar (NZD) remains under pressure against the US Dollar (USD). The pair approaches its lowest level in 17 months around 0.5580, amid escalating geopolitical tensions in the Middle East and elevated Oil prices, which fuel risk aversion across financial markets.

The New Zealand Dollar, particularly sensitive to changes in market sentiment, suffers from the escalating conflict involving Iran and its regional neighbors. A new attack by Iran-backed Houthi rebels on Riyadh's King Khalid International Airport has killed one person and injured 11 others. The strike follows a Saudi attack on Sanaa Airport in Yemen, reinforcing fears of a broader regional conflict.

Diplomatic prospects also remain uncertain. Iran claims that Washington has accepted most of its conditions for a potential agreement, while describing the US response as inadequate. Meanwhile, Iranian official Mohsen Rezaei accuses the United States (US) and the United Arab Emirates (UAE) of involvement in an Oil smuggling network in the Strait of Hormuz, heightening tensions surrounding this strategic shipping route.

These developments keep Oil prices elevated, fueling concerns about global inflation and economic growth prospects. For New Zealand, a net Oil importer, higher energy costs represent an additional risk to economic activity and household purchasing power. This situation further weakens the Kiwi, which is already struggling amid cautious investor sentiment.

On the US side, the Greenback regains some ground after a hesitant start to the day, despite disappointing economic data released on Friday. The University of Michigan (UoM) Consumer Sentiment Index fell to 46.3 in October from 48.1 in September, below economists' expectations of 47.6. The reading reflects deteriorating household confidence in the United States, as consumers face rising living costs and economic uncertainty linked to the Middle East conflict.

However, weaker consumer confidence could limit the US Dollar's upside potential by complicating the monetary policy outlook for the Federal Reserve (Fed). According to the CME FedWatch tool, markets assign a 17% chance to a 25-basis-point interest rate hike at the October meeting, down from 24% a week earlier. Meanwhile, the chance of a rate increase in December stands around 84%, highlighting persistent inflation concerns.

In New Zealand, attention turns to upcoming economic releases, including food inflation figures and the Manufacturing Purchasing Managers Index (PMI) for September. Reserve Bank of New Zealand (RBNZ) Governor Anna Breman is also scheduled to speak on Thursday. These events could influence monetary policy expectations and determine whether the New Zealand Dollar manages to stabilize against the Greenback.

NZD/USD technical analysis

In the one-hour chart, NZD/USD trades at 0.5594, holding a bearish near-term bias as it remains under the 100-period simple moving average (SMA) at 0.5607 and the 200-period SMA at 0.5610. The pair is pressing recent lows, while the Relative Strength Index (14) around 34 leans toward oversold territory, hinting that downside momentum is softening but not yet reversed.

On the topside, initial resistance is aligned at the 100-period SMA at 0.5607, followed by the 200-period SMA at 0.5610 and the horizontal barriers at 0.5630 and 0.5649; above these, 0.5686 and 0.5735 mark higher resistance levels. On the downside, immediate support emerges at 0.5580 ahead of the more substantial floor near 0.5540, where a clearer stabilization would be needed to ease the current bearish pressure.

(The technical analysis of this story was written with the help of an AI tool. Know more.)