Trend Change: USD Weakening from Here? Impact on NZD Gold?

us dollar weakening

The recent sharp reversal in the Kiwi dollar has prompted us to wonder, has the trend of the last year or so now changed from USD strength to weakness?

If so, how will this affect the New Zealand dollar, and local NZ Dollar gold and silver prices?

Estimated reading time: 5 minutes

Longer Term – The USD May Have Changed Course

The chart below shows how the US Dollar Index reached a high in September 2022 and has fallen sharply since then. (Note: The US Dollar Index is made up of the following currencies: Euro 57.6% weight, Japanese Yen 13.6% weight, British Pound Sterling 11.9% weight, Canadian Dollar 9.1% weight, Swedish Krona 4.2% weight, and Swiss Franc 3.6% weight.)

The chart also shows us that at the same time, gold in US Dollars appears to be breaking higher and out of the downtrend it has been in since early 2022.

So gold and the US Dollar appear to be trading in the inverse relationship to each other that they often (although not always) move in.

However we should note that after such a sharp move lower, in the shorter term the US dollar is likely to bounce back up again from here first.

US Dollar Index Chart

So What Does This Mean for the NZD?

If the US Dollar has indeed had a change of trend and is weakening over the longer term, this will probably mean the NZ Dollar will continue to move higher from here.  As you can see it has done since mid October (see the chart below). Although we are likely to see a pull back in the short term after rising so fast and reaching overbought (above 70) on the RSI indicator.

(Note that as the NZ Dollar is not part of the US Dollar Index, we can from time to time see the Kiwi Dollar move in tandem with the USD Index).

NZ Dollar 15 Year Chart.png

What Will This Mean For Gold and Silver in NZ Dollar Terms?

At first glance it may prompt the thought that the local NZ dollar prices of gold and silver will fall from here. After all it is the weakening Kiwi dollar that has been the dominant factor in pushing gold (and to a lessor extent silver) higher over the past year in NZ dollar terms.

Take a look at the chart below to see this. It’s a bit busy but we can draw a few points from it. We’ve drawn a rough trend line in for each data set. The red line is for the NZD gold price. The blue line is for the NZ dollar and the green line is for the US Dollar gold price.

You can see that the NZ Dollar over the past year has been falling faster than the US Dollar gold price (indicated by the steeper blue line than the green line). So this has resulted in the local NZ Dollar gold price rising – as it is a function of these two prices.

NZ Gold vs NZD Vs US Gold 2 Year Chart

So if the NZ Dollar keeps rising as fast as it has been, this may well cancel out any gains in the US Dollar price of gold. And we’ll see a stagnant or even falling NZ dollar gold price.

But we wonder whether the Kiwi Dollar can keep rising at the same rate of knots that it has done for the past 6 weeks? It was very oversold so has bounced back fast.

We wonder if a more likely scenario is for a slower rise overall in the Kiwi? Maybe only back up to around 74/75 cents?

So if the US dollar gold price keeps rising as the US dollar falls and the Kiwi rises more slowly from here, we may see the NZ Dollar Gold price continue to rise still. Albeit at a slower pace than it has done lately.

We’ve expanded the time scale from the above chart out to 20 years to give a much longer term view below.

NZ Gold vs NZD Vs US Gold 20 Year Chart

So this makes it clear that overall whether you price gold in NZ Dollars or US Dollars, over the long term gold has been rising in both.

Or put another way both currencies (or for that matter all fiat currencies) have been falling when measured in gold. With the problems in the global monetary and financial system still not solved and global debt having been ratcheted up even further since 2009, plus now inflation becoming entrenched, the odds are this trend will continue for a while yet too.

To better understand what technical analysis is, and help with timing when to buy gold or silver and check out this article:  Gold and Silver Technical Analysis: The Ultimate Beginners Guide

Editors Note: This post was first published 14 October 2015, when a trend change in the US dollar index took place. Updated 7 December 2022 where a similar trend change seems to be playing out.

3 thoughts on “Trend Change: USD Weakening from Here? Impact on NZD Gold?

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