NZD/USD Rate to Consolidate Amid Failed Test of Former Support

New Zealand Dollar Talking Points

NZD/USD trades near the monthly high (0.6466) ahead of the Reserve Bank of New Zealand’s (RBNZ) Financial Stability Review (FSR), but the exchange rate may consolidate over the remainder of the month as the rebound from the yearly low (0.6204) fails to produce a test of the former support zone around 0.6490 (50% expansion) to 0.6520 (100% expansion).

NZD/USD Rate to Consolidate Amid Failed Test of Former Support

NZD/USD attempts to extend the advance following the RBNZ’s last meeting for 2019 as the central bank decided to keep the official cash rate (OCR) at the record low of 1.00%.

It seems as though the RBNZ will stick to the sidelines at its first meeting for 2020 as “recent monetary stimulus was flowing through the economy and supporting the medium-term growth projections.”

In turn, the updates to the FSR may also tame speculation for lower interest rates as “the Committee agreed that the reduction in the OCR over the past year was transmitting through the economy and that it would take time to have its full effect.” The wait-and-see approach for monetary policy may keep NZD/USD afloat as the central bank appears to be in no rush to further embark on its rate easing cycle.

However, recent comments from RBNZ Assistant Governor Christian Hawkesby suggests the central bank will continue insulate the New Zealand economy as the board is “very open and willing to provide more stimulus if it’s required.” In addition, Mr. Hawkesby insists that every meeting is a “live meeting and we would be willing to change interest rates if the information and facts warrant the change.”

The comments suggest the RBNZ is in no rush to implement lower interest rates following the 50bp rate cut in August, and Governor Adrian Orr may strike a similar tone at the news conference slated for later this week amid renewed hopes for a US-China trade deal.

With that said, a batch of less dovish remarks may spark a bullish reaction in the New Zealand Dollar, but NZD/USD may largely consolidate over the remainder of the month as the rebound from the yearly low (0.6204) fails to produce a test of the former support zone around 0.6490 (50% expansion) to 0.6520 (100% expansion).

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NZD/USD Rate Daily Chart

Source: Trading View

• Keep in mind, the broader outlook for NZD/USD remains tilted to the downside as the exchange rate trades to a fresh yearly-low (0.6204) in October.
• However, failure to break/close below the Fibonacci overlap around 0.6180 (161.8% expansion) to 0.6210 (78.6% expansion) has spurred a near-term correction in the exchange rate.
• With that said, the lack of momentum to test the former-support zone around 0.6490 (50% expansion) to 0.6520 (100% expansion) may generate range bound conditions especially as the Relative Strength Index (RSI) snaps the bullish formation carried over from September.
• As a result, the string of failed attempts to break/close above the overlap around 0.6400 (61.8% retracement) to 0.6430 (78.6% expansion) may spur a move towards 0.6370 (50% retracement), with the next area of interest coming in around 0.6310 (100% expansion).

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.