Date: 25 Jun 2019

The Reserve Bank of New Zealand meets to decide on interest rates this Wednesday, with almost all economists in agreement that the central bank will hold interest rates steady, at 1.50 per cent. The main focus is expected to be on the actual policy language from the central bank Governor Adrian Orr, and if the RBNZ send out dovish signals that more rate cuts are in the pipeline this year.

Antipodean currencies have experienced unexpected demand against the greenback recently, despite both the Reserve Bank of Australia and the Reserve Bank of New Zealand both shifting to dovish policy stances. The kiwi and the Australian Dollar have benefited since the U.S Federal Reserve acknowledged that they would almost certainly be cutting interest rates next month, and possibly at a faster pace than the RBA and RBNZ.

The Reserve Bank of New Zealand’s monetary policy committee cut the nations interest rate by 25 basis points last month and expressed the very real possibility that the interest rate could go even lower this year The global backdrop has continued to worsen since the last policy meeting, while New Zealand’s domestic economy has seen a stabilization in macroeconomic data.

The concern for the central bank is undoubtedly the benign inflation outlook and the ongoing deterioration of its two largest trading partners economies, China and Australia. Both the Chinese and Australian economies are vital for the health of the New Zealand economy, as they consume an enormous amount of its exports and initiate beneficial two-way trade.

Another key factor which points to further cuts from the RBNZ is that the central still has scope to cut rates significantly if required, while other central banks are close or below the neutral interest rate threshold. With the U.S Dollar turning technically bearish, a further interest rate cut from the RBNZ is likely needed to send the kiwi lower, rather than just dovish rhetoric at this stage.

 

NZD/USD Daily Mountain Chart | Source: ActivTrader

NZD/USD Daily Mountain Chart | Source: ActivTrader

 

The NZD/USD pair has been gradually firming above the 0.6600 handle as the U.S Dollar Index comes under severe downside pressure, it seems likely that the kiwi will follow the path of least resistance and head towards the 0.6700 mark. Key downside support for the NZD/USD pair is currently found at the 0.6580 and 0.6550 levels, while the pair’s 200-day moving average is the foremost weekly resistance, at 0.6740.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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