It’s 21:30 GMT on Sunday, March 15, when the New Zealand dollar, NZDUSD, is trading at 0.6135. The New Zealand central bank, RBNZ, had just reduced interest rates by 50 basis points to 0.25%.
The NZDUSD reached a low of 0.5961 on the news but has since then recuperated its losses and turned positive on the day. The limited downside could be explained to the fact that the RBNZ has now committed themselves to leave the interest rate unchanged in the next 12 months. They did, however, open up the door for quantitative easing. Yet, it is unlikely that they will act fast. Instead, they will probably give it a few months to see how the real economy reacts to the interest rate cuts.
From a technical point of view, the New Zealand dollar was already short-term oversold vs. the Dollar, and that can also explain why investors have so far been reluctant to add to their bearish NZDUSD exposure. Adding to this, the US central bank just reduced interest rates to the 0.0 – 0.25% interval. The rate reduction by the Fed comes as a surprise as it is outside of their meeting schedule.
Going forward, the trend in the NZDUSD will remain bearish below the March 6 high of 0.6371, and while it is too early to know how investors will react at the official open at 22:00 GMT, I suspect the next bearish leg in the downtrend will start in the 0.6189 to 0.6371 interval.