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Dovish RBNZ Forward Guidance to Rattle NZDUSD Rate Rebound

Dovish RBNZ Forward Guidance to Rattle NZDUSD Rate Rebound

David Song,
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New Zealand Dollar Talking Points

The short-term rebound in NZD/USD appears to be stalling ahead of the Reserve Bank of New Zealand’s (RBNZ) Financial Stability Report as the exchange rate struggles to extend the recent string of higher highs & lows.

Dovish RBNZ Forward Guidance to Rattle NZDUSD Rate Rebound

The New Zealand Dollar attempts to retrace the decline following the RBNZ rate cut, but NZD/USD stands at risk of giving back the rebound from the monthly-low (0.6482) as the central bank endorses a ‘downward bias’ for the official cash rate (OCR).

Image of rbnz interest rate

The RBNZ may insist that ‘a lower path for the OCR over the projection period was appropriate’ amid the threat for below-target inflation, and the central bank may keep the door open to further insulate the economy as ‘a key downside risk relating to the growth projections was a larger than anticipated slowdown in global economic growth, particularly in China and Australia, New Zealand's largest trading partners.’

Image of DailyFX economic calendar

In turn, dovish remarks coming out of the RBNZ may rattle the New Zealand Dollar, and the central bank may continue to strike a cautious tone ahead of the next meeting on June 25 as Governor Adrian Orr is scheduled to speak over the coming days.

With that said, the rebound in NZD/USD may prove to be short-lived, with the broader outlook tilted to the downside as both price and the Relative Strength Index (RSI) snap the upward trends carried over from 2018.

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NZD/USD Rate Daily Chart

Image of nzdusd daily chart
  • NZD/USD appears to be tracking a descending channel after carving a triple-top, with the broader outlook capped by the Fibonacci overlap around 0.6930 (23.6% expansion) to 0.6960 (38.2% retracement).
  • However, the lack of momentum to break/close below the 0.6490 (50% expansion) to 0.6520 (100% expansion) zone brings the 0.6600 (23.6% retracement) to 0.6630 (78.6% expansion) area on the radar.
  • Next region of interest coming in around 0.6710 (61.% expansion) to 0.6740 (23.6% expansion), the former-support zone.
  • Nevertheless, the bearish trends in both price and the RSI raises the risk for fresh yearly lows, with the next downside hurdle coming in around 0.6370 (50% retracement) to 0.6430 (78.6% expansion), which largely lines up with the 2018-low (0.6424)

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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