This is the key question the Reserve Bank of New Zealand (RBNZ) will answer when it delivers its interest rate decision and rate statement, followed by the press conference from the RBNZ Governor Adrian Orr at 2 am GMT, and 3 am GMT respectively.
The market consensus is for the RBNZ to leave rates unchanged. However, traders should watch for comments in the statement that make a hint about the direction of future policy, especially as the RBNZ is not holding a long-term view on rate stagnation. Economic performance of New Zealand has also been more upbeat than its western counterparts. The government stemmed community transmission of the coronavirus early, allowing the economy to kickstart and jerk back to life. Unemployment fell only 0.4%; much better than the predicted fall of 2%. The unemployment rate also fell by a better-than-expected 4%. These pointers make a case for the RBNZ not to expand its stimulus program.
However, there are headwinds. Travel bans have blocked the inflow of skilled foreign workers into the country. Unemployment is projected to rise further as the long-term effects of the coronavirus pandemic start to manifest. Inflation may fall below the RBNZ’s targets, thus weakening the country’s export position. The RBNZ had also opened the door towards negative rates in an earlier meeting, promising to use this month’s meeting to decide on further action based on economic performance.
Trade Outlook for the NZDUSD
The interest rates are not likely to change. So experts will watch for expansion of the RBNZ’s bond-buying scheme above the current threshold of NZ$60 billion. Increasing the bond purchase program is seen as an NZD -ve effect. The support at 0.65858 would have to give way for such an impact to pull down the NZDUSD, targeting 0.64937 and possibly 0.64187. Further downside targets are located at 0.62835 and 0.62347.
If the RBNZ leaves the bond purchase program at current levels, this affirms the bank’s belief that the NZ economy is on the path to recovery. This decision would also reinforce bullish sentiment on the NZD. In this instance, traders would look for a bounce from 0.65858, targeting 0.67403 and possibly 0.69068 in the medium term.
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NZDUSD Daily Chart
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