The Kiwi flew up the charts in today’s trading as the RBNZ kept rates steady. NZDUSD is up by 0.98% from its opening price at 0.6465 following the central bank’s decision to keep its Official Cash Rate (OCR) at 1.00%.
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No More Rate Cuts from the RBNZ?
This decision was widely-expected by market participants. Unemployment improved in New Zealand as it printed at 4.00% for December from 4.20% in November. The annual inflation reading also clocked in higher at 1.90% for Q4 2019 than 1.50% in the third quarter. Despite improvements in economic data, however, forex traders expected the RBNZ to sound dovish. Generally, the forecast was for the central bank to warn of additional easing. It did not happen.
New Zealand policymakers still see the need for easy monetary policy in order to keep employment and inflation around target levels. However, forecasts for the OCR suggest that the RBNZ will not be cutting rates this year. For June 2020 and March 2021, interest rates are seen to be at 1.01% and 1.03, respectively, from both previously being estimated at 0.9%.
The Coronavirus Is Not A Threat (Yet)
According to the RBNZ statement, they will only make changes to the central bank’s monetary policy stance if the economic impact of the coronavirus is larger than expected. Currently, policymakers think it’s too early to make an assessment of how the outbreak could impact New Zealand’s growth. However, they are slowly beginning to feel the inconveniences brought about by it. For instance, exporters of meat, dairy, timber, and seafood from New Zealand are experiencing disruptions to their business activity. China is their largest export market and lockdowns across Chinese cities have led to cancellations of export orders.
NZDUSD Outlook
Today’s surprisingly-hawkish statement from the RBNZ was enough for NZDUSD to find reprieve from the bears’ advances.
On the 4-hour time frame, we can see that the currency pair is testing resistance at the 38.2% Fib level (when you draw the Fibonacci retracement tool from the high of January 24 to the low of February 11). The downtrend on NZDUSD is still intact because when you connect the highs of December 31, January 16, and January 24, you will see that trend line resistance falls around the 0.6500 handle. This price also coincides with the 50% Fib level and the 100 SMA. If there are enough buyers in the market to push NZDUSD above this psychological handle, the currency pair may soon trade to 0.6600 where it made highs on January 28.
Conversely, if NZDUSD fails to close above this level, it could indicate that there are still enough sellers in the market. The currency pair may soon then re-test its recent lows at 0.6380 for support.
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