Reserve Bank of New Zealand Preview: Free the OCR!

• The Official Cash Rate is expected to remain on hold at 0.25%.
• Economic progress in New Zealand better than anticipated, Orr may hint at tightening.
• NZD/USD has room to extend its advance, mainly on a break above 0.7100.

The Reserve Bank of New Zealand will announce its monetary policy decision this Wednesday. The Official Cash Rate stands at 0.25%, and Governor Adrian Orr has promised to keep it at such a level for a year in March 2020, when the beginning of the pandemic forced most central banks to take extraordinary decisions.

Back then, the RBNZ announced a range of measures to support the financial system, which included term loans to banks, buying back up to $30 billion of government bonds and an open swap line with the US Federal Reserve of up to $ 30 billion.

Rate hike more likely than a cut

The global health crisis continues, but in New Zealand, the economic recovery has been stronger than expected. By the end of 2020, speculative interest was betting on a rate hike rather than a rate cut amid a solid Q3 Gross Domestic Product figure. However, back in March this year, the country said that the economy contracted by 0.9% in the last quarter of 2020 against an expected advance of 0.5%, cooling expectations of an up move from policymakers.

Nevertheless, a rate cut is also out of the picture for this April meeting.  Orr & Co. are expected to maintain the status quo, despite Governor Orr joked about rates last month saying “free the OCR.”

The market is heading into the meeting with little hopes for action, but excited about possible hints on what’s next for the RBNZ. Would policymakers remain “patient,” or will they be more optimistic?

True, New Zealand businesses are still struggling with operating restrictions due to the coronavirus and has its borders closed. The country will open borders with Australia starting on April 19, but travel restrictions from other countries will remain in place. In general, both countries have been better posed to deal with COVID-19 but have not been immune to the global struggle.

NZD/USD technical outlook

The NZD/USD pair has been ranging just above the 0.7000 level for over a week already, meeting sellers at around 0.7070. The technical picture is neutral-to-bullish in the daily chart, with the pair capped by a bearish 20 DMA but holding nearby. The longer moving averages maintain their bullish slopes, although the 100 DMA is far above the current levels. Meanwhile, the Momentum indicator advances within positive levels while the RSI indicator remains directionless around 44.

Overall, the risk is skewed to the upside, but chances of a bullish continuation will increase should the pair move beyond 0.7100. The next resistance levels come at 0.7135 and 0.7180. Below the 0.7000 figure, on the other hand, the pair can fall toward 0.6942, this year low.