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Wait-and-See RBNZ to Keep NZD/USD Under Pressure

Wait-and-See RBNZ to Keep NZD/USD Under Pressure

2018-05-09 18:30:00
David Song, Strategist
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Trading the News: Reserve Bank of New Zealand (RBNZ) Interest Rate Decision

  • Reserve Bank of New Zealand (RBNZ) to Hold Official Cash Rate at Record-Low of 1.75% at Governor Adrian Orr’s First Meeting.
  • NZD/USD Risks Further Losses as Lower-Highs Persist. Relative Strength Index (RSI) Starts to Deviate with Price.
Image of RBNZ expectations

The Reserve Bank of New Zealand (RBNZ) interest rate decision may keep NZD/USD under pressure should Governor Adrian Orr & Co. stick to the status quo and endorse a wait-and-see approach for monetary policy.

More of the same at Governor Orr’s first meeting is likely to sap the appeal of the New Zealand dollar as the central bank remains in no rush to lift the cash rate off of the record-low, and the RBNZ may continue to strike a cautious tone amid the ongoing slack in the real economy.

However, a material shift in the forward-guidance for monetary policy may spark a bullish reaction in NZD/USD as it boosts bets for an imminent rate-hike, and the central bank may change it tune throughout 2018 as ‘inflation is forecast to trend upwards towards the midpoint of the target range’ over the medium-term. Sign up and join DailyFX Currency Strategist Ilya Spivak LIVE to cover the RBNZ interest rate decision.

Impact that the RBNZ rate decision has had on NZD/USD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2018

03/21/2018 20:00:00 GMT

1.75%

1.75%

-6

-27

March 2018 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision

NZD/USD 5-Minute Chart

Image of NZDUSD 5-minute chart

The Reserve Bank of New Zealand (RBNZ) kept the cash rate at the record-low of 1.75% at acting-Governor Grant Spencer’s last meeting, with the central bank reiterating that ‘monetary policy will remain accommodative for a considerable period’ in an effort to combat the ongoing slack in the real economy.

The RBNZ noted that ‘GDP was weaker than expected in the fourth quarter, mainly due to weather effects on agricultural production,’ and went onto say that ‘CPI inflation is expected to weaken further in the near term due to softness in food and energy prices and adjustments to government charges.’

The New Zealand dollar struggled to hold its ground following more of the same from the RBNZ, with the NZD/USD rate edging lower throughout the day to close at 0.7206.

NZD/USD Daily Chart

Image of NZDUSD daily chart
  • NZD/USD may continue to give back the advance from the November-low (0.6780) as it extends the string of lower highs from earlier this week, with a break/close below the 0.6940 (61.8% expansion) opening up the Fibonacci overlap around 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion).
  • However, lack of momentum to clear the stated region raises the risk for a rebound, with the first topside hurdle coming in around 0.7040 (50% retracement) to 0.7110 (38.2% expansion) followed by the overlap around 0.7170 (50% retracement) to 0.7200 (38.2% retracement).
  • Keep a close eye on the Relative Strength Index (RSI) as it starts to come off of oversold territory and appears to be deviating with price.

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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