TALKING POINTS:
- NZD/USD appreciatedas RBNZ notes it sees signs of core inflation picking up pace
- NZD remains bearish as RBNZ is unlikely to change 1.75% OCR in the near future
- ANZ Consumer Confidence data, US-China trade war, and emerging markets next
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The New Zealand Dollar rallied against its US counterpart as the Reserve Bank of New Zealand maintained its overnight cash rate at 1.75% ahead of Thursday’s Asia Pacific trading session. The central bank stated that while it expects to keep this level through 2019 and 2020 and that the next move could be either a hike or cut, it sees “welcome early signs” of upticks in core inflation. The rate outlook also assumes growth will pick up in the coming year. The Kiwi’s ascent continued earlier volatility sustained due to the Federal Reserve increasing rates earlier today.
NZD/USD 5-Minute Chart
However, follow-through on a rally may be lacking as the currency pair has remained in a downtrend channel since May 2018. The New Zealand Dollar’s downside momentum has been extended by mostly lackluster local economic data and an increasingly hawkish FOMC since then. By contrast, the RBNZ left the door open to a rate cut in their announcement today, leading 10-year government bond yields to decrease. Furthermore, NZD/USD’s recent breakout above the descending June 2018 line, it currently eyes February 2016 support levels around the 0.66 figure.
NZD/USD Daily Chart
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Looking ahead, the Kiwi Dollar may reverse its gains as it faces the release of the September’s ANZ Consumer Confidence Index figures and monthly building permits data for last month. Furthermore, the sentiment-linked unit will closely eye market risk trends, possibly echoing recent strengths in Asia Pacific stocks. Trade war developments will also play a key role, as the Trump administration’s 25% tariffs on $200b of Chinese goods starting next year could weaken emerging markets in the long run. Losses in these equities may eventually be mirrored by the New Zealand Dollar.
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--- Written by Megha Torpunuri, DailyFX Research Team
