RBNZ Keeps Rates Unchanged

Forex Markets Analysis From CPT Markets UK

Marius Paun | London, UK | Senior dealer | Wednesday, 25 th September 2019

New Zealand is categorised as a highly developed free market economy, valued at just over USD200 billion equivalent. It is the 53 rd largest economy in the world by nominal gross domestic product. As one of the globalised economies, it has significant trade volumes with Australia, the European Union, the USA, China, Japan and Canada. Its diverse economy includes mining, wood and metal manufacturing, food processing as well as an important services sector accounting for over 60% of GDP. Although New Zealand has a current account deficit, trade balance is generally positive.

Early morning on Wednesday, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) unchanged at a record low of 1%, as per market expectations. It added that there is room for more monetary and even fiscal stimulus to support its economy, highly sensible to global trade issues.

The last time the central bank intervened was in August this year when it cut 50 basis point, to the surprise of market participants, who anticipated only a 25 basis point slash. It justified the aggressive move by saying it wanted to insulate the economy from a sharp slowdown and protect it from the broadening impact of the US-China trade war.

This time, the Monetary Policy Committee agreed that new information since last meeting‘did not warrant a significant change to the monetary policy outlook’. And with the global long-term interest rates near historically low levels, ‘markets can expect New Zealand’s interest rates to be lower for longer’.

RBNZ has also commented on the recent reduction in interest rates saying they helped to push the New Zealand dollar (NZD) down and that low rates were needed to push inflation to 2%, mid-point of its target rate (range of 1% to 3% since September 2002). At the same time, the cut is meant to support employment already near the maximum sustainable. 

In reaction to the policy announcement, the NZD spiked higher to $0.6347 as RBNZ did not specifically mention when the next rate cut would happen. However, markets remain convinced it’s not a question of if but when they move next, pricing in a 65% chance of a 25 basis cut in November. Growth in New Zealand was rather scarce this year following trade disputes which in turn affected demand from China. On top of that Brexit uncertainty also played a role in sending business confidence to record lows.

Below we look at the daily chart of NZDUSD and discuss some technical:

First thing we note is that the long-term trend of NZD against USD is firmly down with the current price within touching distance of the recent low at 0.6253 seen on 20th of September.

This year’s high it was touched on February 1 st at 0.6940 and retested on March 21 st . A failure to move above that mark has opened the door for a steady decline. Testimony to how strong in control the bears are, is the fact that the last pullback was as short in duration as was in intensity.

The moving averages also paint a gloomy outlook. The price is below the 9 and 21 day MA and additionally the 9 day MA is below 21 day MA pointing for now to further downside potential albeit the odd retracement.

Early today we saw a rebound which encountered strong resistance around the 21 day MA. Since then, bears retook control and pushed NZDUSD to a low of 0.6275 at the time of writing. It seems that a retest of the low of 0.6253 could be on the cards.

On the upside the next level of resistance could be seen around 0.6360 followed by 0.64. If the bulls manage somehow to push for a break above 0.6440 at least the short-term momentum will shift to the upside. However, if that scenario comes true, some serious resistance is likely to be met around 0.6475 mark.