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NZD/USD Levels to Watch as RBNZ Expands Large Scale Asset Purchases

NZD/USD Levels to Watch as RBNZ Expands Large Scale Asset Purchases

2020-05-14 05:00:00
David Song, Strategist

New Zealand Dollar Talking Points

NZD/USD extends the decline from earlier this month as the Reserve Bank of New Zealand (RBNZ) expands its Large Scale Asset Purchase (LSAP) program, and the exchange rate may continue to give back the advance from the April low (0.5843) amid the failed attempt to push above the former support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion).

NZD/USD Levels to Watch as RBNZ Expands Large Scale Asset Purchases

NZD/USD carves a series of lower highs and lows after failing to test the April high (0.6176), and the New Zealand Dollar may continue to weaken against its US counterpart as the RBNZ offers a dovish forward guidance for monetary policy.

Image of RBNZ interest rate

Source: RBNZ

The RBNZ kept the official cash rate (OCR) at the record low of 0.25% while widening the LSAP program to NZ$60 billion from NZ$33 billion, and it seems as though Governor Adrian Orr and Co. will continue to take unprecedented steps to support the New Zealand economy as the “Monetary Policy Committee is prepared to use additional monetary policy tools if and when needed, including reducing the OCR further.”

It remains to be seen if the RBNZ will deploy more non-standard measures over the coming months as “members noted that the main thing needed to support the economy is fiscal stimulus,” and it seems as though the central bank is in no rush to implement a negative interest rate policy (NIRP) as Governor Orr and Co. insist that “further OCR reductions at this stage would not be effective.”

In turn, the RBNZ may utilize its balance sheet throughout 2020 as “members agreed that an expansion to the LSAP programme is the most effective way to deliver further stimulus at this time,” but speculation for a NIRP in New Zealand may continue to drag on NZD/USD especially as Federal Reserve Chairman Jerome Powell tames bets for negative US interest rates.

With that said, NZD/USD stands at risk of give back the advance from the April low (0.5843) following the failed attempt to push above the former support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion).

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NZD/USD Rate Daily Chart

Image of NZD/USD rate daily chart

Source: Trading View

  • Keep in mind, NZD/USD has failed to retain the range from the second half of 2019 as the decline from earlier this year produced a break of the October low (0.6204), with a ‘death cross’ taking shape in March as the 50-Day SMA (0.6012) crosses below the 200-Day SMA (0.6329).
  • The negative slope in both the 50-Day SMA and the 200-Day SMA offer a bearish outlook for NZD/USD, and the advance from the yearly low (0.5469) appears to have stalled ahead of the former support zone around 0.6170 (50% expansion) to 0.6230 (38.2% expansion) as both price and the Relative Strength Index (RSI) snap the bullish formations from March.
  • NZD/USD carves a series of lower highs and lows following the failed attempt to test the April high (0.6176), with the break/close below the 0.6000 (100% expansion) to 0.6010 (161.8% expansion) region bringing the 0.5880 (100% expansion) area on the radar.
  • Need a break of the April low (0.5843) to open up the Fibonacci overlap around 0.5740 (78.6% retracement) to 0.5790 (61.8% retracement), with the next area of interest coming in around 0.5640 (261.8% expansion).
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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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