RBNZ dovish shift sends the kiwi crashing lower
The New Zealand Dollar fell over one percent against the US Dollar on Wednesday, after the Reserve Bank of New Zealand Governor Adrian Orr said that next rate move by the New Zealand central bank would likely be a rate cut. The dovish policy language shift weighed heavily on the nation’s currency, as traders priced-in a potential rate cut happening as soon as August this year.
While the RBNZ maintained interest rates at current levels, the monetary policy statement was decidedly more bearish than the previous policy statement from the central bank. Governor Adrian Orr noted that weakness in the global economy and reduced momentum in the New Zealand economy meant that the direction of the next rate decision would be lower.
The RBNZ also acknowledged that core inflation in New Zealand is still well below the central bank’s two percent target, which meant that continued supportive monetary policy remained necessary. The central bank also said that low interest rates were needed to stabilize the economy as well as additional government spending to support economic growth.
Traders are now starting to speculate when the Reserve Bank of New Zealand will decide to cut interest rates as RBNZ policymakers join the chorus of other major central banks across the globe calling for a loose monetary policy to fight-off headwinds from the slowing global economy.
The next Reserve Bank of New Zealand interest rate decision takes place on May 8, while New Zealand policymakers delivering a revised set of economic projections during this meeting. If domestic and global economic data continues to worsen, it is likely that a rate cut may follow in August, although if data starts to improve the RBNZ may need more time to asses the economic data.
NZD/USD Weekly Mountain Chart | Source: ActivTrader
Following yesterday’s decline NZD/USD bulls have so far been able to defend the key 0.6780 level, although price-action still suggest that the kiwi is becoming more bearish. Key support under the 0.6780 level is found at the 0.6740 and 0.6685 level, while the 0.6840 and 0.6865 levels currently offer the strongest form of near-term resistance.
Written by Nathan Batchelor, External Analyst
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