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NZD/USD Rebound Vulnerable to Dovish RBNZ Forward Guidance

NZD/USD Rebound Vulnerable to Dovish RBNZ Forward Guidance

2018-08-08 19:30:00
David Song, Currency Strategist
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Trading the News: Reserve Bank of New Zealand (RBNZ) Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) meeting may do little to boost the appeal of the New Zealand dollar as the central bank is widely expected to keep the official cash rate (OCR) at the record-low of 1.75% in August.

Image of DailyFX economic calendar

The RBNZ may continue to endorse a wait-and-see approach for monetary policy as ‘the recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated,’ and Governor Adrian Orr & Co. may continue to tame expectations for higher interest rates as officials argue that ‘the best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period.’ In turn, more of the same from the RBNZ may produce a bearish reaction in NZD/USD especially as the Federal Reserve remains on course to further normalize monetary policy.

However, like the Reserve Bank of Australia (RBA), an unexpected shift in the RBNZ’s forward-guidance for monetary policy should heighten the appeal of the New Zealand dollar, with a batch of hawkish rhetoric likely to fuel the recent rebound in NZD/USD as it encourages bets for higher interest rates. Sign up and join DailyFX Currency Strategist Ilya Spivak LIVE for a broader discussion on current themes and potential trade setups!

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN

2018

06/27/2018 21:00:00 GMT

1.75%

1.75%

+7

-38

June 2018Reserve Bank of New Zealand (RBNZ)

NZD/USD 10-Minute Chart

Image of NZDUSD 10 minute chart

To no surprise, the Reserve Bank of New Zealand (RBNZ) kept the official cash rate (OCR) at the record-low of 1.75% in June, with the central bank noting that it is ‘well positioned to manage change in either direction – up or down – as necessary.’ The central bank went onto say that the ‘he recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated,’ and it seems as though Governor Adrian Orr & Co. will stick to the sidelines over the coming months as officials note that ‘the best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period.

Despite the limited reaction to the RBNZ, NZD/USD struggled to hold its ground following the meeting, with the exchange rate slipping back below the 0.6800 handle to end the day at 0.6757. Learn more with the DailyFX Advanced Guide for Trading the News.

NZD/USD Daily Chart

Please add a description for the image.
  • Keep in mind, a broader shift in NZD/USD behavior appears to be taking shape as both price and the Relative Strength Index (RSI) threaten the bearish formations from earlier this year, and the rebound from the 2018-low (0.6688) may gather pace once the exchange rate breaks out of the range-bound price action from earlier this month.
  • The string of failed attempts to break/close below the 0.6710 (61.8% expansion) to 0.6720 (61.8% expansion) region raises the risk for a move back towards 0.6710 (61.8% expansion) to 0.6720 (61.8% expansion, with the near-term outlook capped by the former-support zone around 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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