RBNZ raise rates again

New Zealand Dollar Research Report

• RBNZ raise rates again

• Accompanying statement is more dovish

Sterling New Zealand Dollar (GBPNZD) FX Technical Analysis

For the third consecutive RBNZ meeting, policy makes increased interest rates to 3.5% - it had been widely anticipated by the market and its was the accompanying statement that was going to trigger the price action. As is often the case, interest rate increases/decreases are priced in before the event and if the RBNZ had alluded to further monetary tightening, we would have seen GBPNZD fall towards 1.90 again. In the event the accompanying statement was dovish - the central bank suggesting that they’ll keep interest rates at the current level now for the time being (rather like the RBA only a few months before).

Governor Wheeler said that there would now be a period of assessment before interest rates adjust further, he went on to say “the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall” So it’s possible that the bank will intervene in the current markets to weaken the Kiwi, admittedly their ammunition is more limited than a large institution like the Fed or Bank of England, but traders took it as a cue to sell the currency and we saw GBPNZD rally strongly from 1.9580 (20 day moving average) to end the trading day over 2 cents higher.

As you can see from the chart, GBPNZD has broken out of the downtrend that has been in place for the majority of this year. That’s good news of course but it’s a bit too early to say yet if we’re going to remain in the 1.90-2.00 trading range that has dominated the last few years’ price action, or whether we’re at the start of a new uptrend. I’d be inclined to play it safe for the moment so we’re likely close to topping out at the moment if we haven’t already this week.

Part of the future direction of the Kiwi (and Aussie) will be dictated by pace at which the US economic growth picks up - in short, the quicker the US return to sustainable growth, the quicker the carry trade will unwind and the weaker the NZD will get in relation to the USD and to a degree, the pound.

For NZD Buyers

Same old story I’m afraid – target high 1.90’s or 2.00 at best – limit orders obviously a sensible way to go as they are in the market 24 hours a day so you don’t have to sit in front of your PC all day and night waiting to call and book a deal if the market rallies. On the downside, it’ll be worth seeing what happens when GBPNZD corrects back down to the breakpoint of the downtrend (which also coincides with the 20 day moving avg.) – is it finds support at 1.9650 we could see a retest the 2.00 level. One day it’ll break higher (perhaps when UK interest rates increase early next year).

For NZD Sellers

As in previous research papers, target below 1.9500 with sell orders, probably no lower than that because as per the chart, there’s strong support at 1.9350. Also because we’re currently on a breakout I would recommend you position a stop loss above 2.00 or 2.02 depending on how close to the market you want to have your safety net.