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RBNZ Cuts Interest Rates By 50bps: More Downside for NZD Expected

The New Zealand Dollar tumbled in the Asian trading session after the Reserve Bank of New Zealand (RBNZ) performed a 50bps slash in the Overnight Cash Rate (OCR), dropping interest rates to 1%. This was a surprise move as the market consensus was for a 25bps cut. While analysts are of the view that this large reduction will reduce the odds for a further cut in September, the odds are still up for another rate cut in November. The NZDUSD dropped 168 pips after the announcement, but has since recovered some ground and is trading at 0.64315.

In performing this aggressive rate cut, the RBNZ based its decision on worsening domestic and global growth outlook, and even though there is a less than optimistic forecast of better economic conditions in 2020, growth forecasts for 2019 have been downgraded to 0.5% on a quarterly basis.

However, the statement also provided some allowance for further action as it provided lower inflation estimates and was also tentative on growth targets.

The NZDUSD broke the key support level at 0.6493 (S1 pivot support) following the announcement, but has retraced upwards, targeting the S2 pivot at 0.64612. An upside break of the S2 pivot (now acting as resistance) will bring the previous support at 0.6493 into focus.

The sentiment for the NZDUSD is bearish, therefore the 0.6493 price level may be an important area to rally point to sell at, provided it holds firm in its role reversed function.