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NZD/USD, RBNZ Talking Points

  • New Zealand Dollar tumbles as RBNZ delivers surprise 50bps cut
  • Another 25bps cut this year could lead to further NZD depreciation
  • NZD/USD is looking to take out key support, eyeing 2016 lows?

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NZD/USD Sinks as RBNZ Delivers 50bps Cut

The New Zealand Dollar tumbled after the RBNZ unexpectedly delivered a more-aggressive interest rate cut. In August, the Reserve Bank of New Zealand lowered its official cash rate to 1.00% from 1.50%, or in other words a 50-basis point cut. This caught markets off guard as expectations of a 25bps cut were the prominent bet.

A combination of commitment to meet labor and inflation objectives alongside uncertainty over global trade helped to contribute to today’s action. Lately, there have been rising concerns over the latter as markets anticipate whether the US and China could escalate tensions. This includes US President Donald Trump raising tariffs on about $300b against China to 25% from 10%.

For the New Zealand Dollar, attention turns to if the central bank might cut rates by an additional 25 basis points to 0.75%. Their monetary policy statement indicated that there is a chance that this might happen. Expect more Kiwi Dollar weakness if trade tensions worsen. Domestically, if economic data trends follow yesterday’s upbeat jobs report, that may bode well for the NZD.

In the near-term, the NZD/USD will be closely eyeing the upcoming press conference from RBNZ Governor Adrian Orr. Odds of a further 25bps rate cut are about 50% according to overnight index swaps. If he errs on the side of caution and underpins the focus on data-dependency, this may offset recent selling pressure in the New Zealand Dollar.

NZDUSD Technical Analysis, IG Client Sentiment

The NZD/USD, after the RBNZ, is aiming to resume the near-term downtrend from the end of July. Support, which is a range between 0.6482 and 0.6501, is on the verge of being taken out. Prices are now eyeing October 2018 lows which if taken out, exposes the next psychological barrier between 0.6348 and 0.6403.

This is accompanied by bearish-contrarian price signals that IG Client Positioning is showing on the New Zealand Dollar. If net-long positioning continues to rise, this may exacerbate declines in NZD/USD. Join me every week on Wednesday’s at 00:00 GMT as I discuss how you can use this in your own trading strategy.

NZDUSD Daily Chart

New Zealand Dollar Sinks as RBNZ Surprises Markets With 50bps Cut

New Zealand Dollar Trading Resources

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter