Date: 27 Jun 2019

The Reserve Bank of New Zealand kept interest rates unchanged at 1.50 percent as widely predicted on Wednesday, but provided a clear hint that further interest rate cuts may be coming. The official RBNZ policy statement said further cuts may be needed as domestic growth has weakened since the last policy meeting, while the global economic outlook remains increasingly uncertain.

The last interest rate cut from the RBNZ was on May 8th this year, as the central bank bowed to growing pressure to slash its benchmark rate from 1.75 percent to 1.50 percent. The bearish policy statement now leaves the prospect of a potential interest rate cut from the Reserve Bank of New Zealand as soon August, bring the cash rate down to a record low of 1.25 percent.

The policy statement also singled-out the New Zealand housing market and business sentiment as areas that have continued to hinder spending confidence inside the domestic economy. Worsening global trade was also mentioned, due to the ongoing trade war between the United States and China. According to the Reserve Bank of New Zealand, the overarching aim of reducing interest rates is to stimulate domestic spending and growth once again.

The central bank also committed to renewed government spending to support the economy during the current downturn. Given that other central banks are also cutting interest rates, traders and investors were indifferent towards the RBNZ policy statement, with the New Zealand Dollar trading higher against the greenback and the Japanese yen, after a brief knee-jerk reaction to the policy decision.

 

NZD/JPY Daily Mountain Chart | Source: ActivTrader

NZD/JPY Daily Mountain Chart | Source: ActivTrader

 

Improving risk-sentiment ahead of the G20 summit on Friday has seen the New Zealand Dollar start to gain strength against the Japanese yen currency. Positive developments from this key summit may see the NZD/JPY pair continue to track higher. Key resistance is found at the 73.00 and 73.55 levels, while key support remains at the 72.00 and 71.65 levels.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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