The Reserve Bank of New Zealand (RBNZ) is anticipated to leave the Official Cash Rate target unchanged for the third straight meeting at 2.50 percent. In RBNZ Governor Alan Bollard's last policy statement, he sounded extremely cautious on the outlook for the economy, especially because the strength of the New Zealand dollar had created additional risks. Where the New Zealand dollar ends the trading day will likely have to do with the status of one statement though: the final portion. We also saw in the last policy statement that the RBNZ maintained that it was “appropriate to continue to provide substantial monetary policy stimulus to the economy” and that the central bank could still lower rates “modestly” during the coming quarters as they “continue to expect to keep the OCR at or below the current level through until the latter part of 2010.” If the RBNZ eliminates the phrase noting that they could still lower rates, the New Zealand dollar is likely to surge in anticipation of rate hikes down the line, as Credit Suisse overnight index swaps are currently pricing in 100 basis points in increases over the next 12 months. From a technical perspective, the NZDUSD push above the 61.8% fib of the 2008-2009 decline opens the door to a more significant rally toward 0.7495/0.7500.
Source: FXtrek IntelliCharts
On the other hand, if the RBNZ maintains their dovish-neutral tone, the currency could slip but the bigger impact may be on NZDJPY, rather than NZDUSD, as the pair has been trading within a narrow range since rising above falling trendline resistance on Monday, which now offers support at 64.00/11.
Source: FXtrek IntelliCharts
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