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RBNZ Preview: NZD/USD Rebound Susceptible to Dovish Policy Outlook

RBNZ Preview: NZD/USD Rebound Susceptible to Dovish Policy Outlook

2017-11-08 16:00:00
David Song, Strategist
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- Reserve Bank of New Zealand (RBNZ) to Hold Official Cash Rate at Record-Low of 1.75%.

- Will Acting Governor Grant Spencer Continue to Tame Bets for Higher Borrowing-Costs?

Trading the News: Reserve Bank of New Zealand (RBNZ) Interest Rate Decision

RBNZ Interest Rate Decision

NZD/USD stands at risk of extending the decline from the previous month as the Reserve Bank of New Zealand (RBNZ) is widely expected to preserve the record-low cash rate at the last policy meeting for 2017.

With the coalition government under Prime Minister Jacinda Ardern pledging to review and revise the RBNZ’s mandate, acting GovernorGrant Spencer may merely attempt to buy more time especially as Finance Minister Grant Robertson argues ‘monetary policy should play its part in the overall economic goals of our government.’ With that said, the change in leadership may keep the RBNZ on the sidelines until Governor Spencer’s term expires in March as the central bank remains in no rush to normalize monetary policy.

Nevertheless, NZD/USD may face a bullish reaction if the RBNZ unexpected alters the monetary policy outlook and prepares New Zealand households and businesses for a rate-hike in 2018.

Impact that RBNZ interest 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)

SEP

2017

09/27/2017 20:00:00 GMT

1.75%

1.75%

-18

+16

September 2017 Reserve Bank of New Zealand (RBA) Interest Rate Decision

NZD/USD 10-Minute Chart

NZD/USD Chart

The Reserve Bank of New Zealand (RBNZ) stuck to the sidelines in September, and it seems as though acting GovernorGrant Spencer will retain the record-low cash rate throughout the remainder of the year as ‘headline inflation is likely to decline in coming quarters.’ The accompanying policy statement suggests the RBNZ will continue to tame bets for higher borrowing-costs as officials reiterate ‘monetary policy will remain accommodative for a considerable period,’ and the central bank may look to toughen the verbal intervention on the local currency as ‘a lower New Zealand dollar would help to increase tradables inflation and deliver more balanced growth.

The New Zealand dollar struggled to hold its ground following the RBNZ rate decision, but the market reaction was short-lived, with NZD/USD climbing back above the 0.7200 handle to close the day at 0.7235. Interested in trading the RBNZ interest rate decision but don’t have a strategy? Review theFREE DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

NZD/USD Daily Chart

NZD/USD Daily Chart
  • NZD/USD may continue to retrace the sharp decline from the previous month following the failed attempt to break the 2017-low (0.6818), while the Relative Strength Index continues to come off of oversold territory and approaches trendline resistance.
  • Break/close above the 0.6940 (61.8% expansion) to 0.6950 (38.2% retracement) hurdle opens up the next region of interest around 0.6990 (23.6% retracement).
  • However, the broader outlook for NZD/USD remains mired by the bearish formations carried over from the summer months, with the pair at risk of making another run at the key support-zone around 0.6820 (23.6% retracement) to 0.6870 (50% retracement) as it snaps the series of higher highs & lows from earlier this month.
  • Next downside target comes in around 0.6780 (100% expansion) followed by the 0.6710 (61.8% expansion) region.

Want to follow the market reaction? Sign up & join DailyFX Chief Strategist John Kicklighter LIVE to cover the RBNZ interest rate decision.

--- Written by David Song, Currency Analyst

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

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

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