NZD/USD recovers half of RBNZ policy-related losses, outlook remains weak

NZD/USD recovers some of its early losses driven by RBNZ’s surprise 50 bps interest rate cut announcement.
The RBNZ has kept the door open for further monetary policy easing.
Global political developments have increased the safe-haven demand of the US Dollar.

Sagar Dua FXStreet

The NZD/USD pair claws back half of its early losses and rebounds to near 0.5775 during the late European trading session on Wednesday. Still, the Kiwi pair is down 0.4%.

The pair faced selling pressure after the monetary policy announcement by the Reserve Bank of New Zealand (RBNZ) in which it surprisingly reduced its Official Cash Rate (OCR) by 50 basis points (bps) to 2.5%. Economists also anticipated an interest rate cut from the RBNZ, but at a regular pace of 25 bps.

RBNZ members said in the monetary policy statement that the door of further monetary policy easing remains open, citing downside risks to inflation and economic activity.

Higher-than-expected interest rate cuts by the RBNZ had boded poorly for the New Zealand Dollar (NZD).

Meanwhile, sheer strength in the US Dollar (USD) is also weighing on the Kiwi pair. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, revisits the two-month high near 99.00.

The US Dollar performs strongly as its safe-haven demand has increased amid political developments in Japan and France.

Going forward, ongoing United States (US) government shutdown is expected to limit the US Dollar’s upside. On Tuesday, US President Donald Trump threatened that the White House would cut spending programs as the government enters its second week of shutdown. Trump also stated that he will provide details about lay-offs in federal agencies in next four or five days.

Economic Indicator

RBNZ Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) announces its interest rate decision after each of its seven scheduled annual policy meetings. If the RBNZ is hawkish and sees inflationary pressures rising, it raises the Official Cash Rate (OCR) to bring inflation down. This is positive for the New Zealand Dollar (NZD) since higher interest rates attract more capital inflows. Likewise, if it reaches the view that inflation is too low it lowers the OCR, which tends to weaken NZD.

Why it matters to traders?

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by interim Governor Christian Hawkesby's press conference.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

AUD/USD meets fresh supply and tests 0.7100 amid weak Australian PMIs

AUD/USD has come under fresh selling pressure and is testing 0.7100 in the Asian session on Wednesday. Australia's flash PMIs showed manufacturing slipped into contraction and services expanding slowly for a second straight month, renewing the pair's downside. Furthermore, a bullish US Dollar acts as a headwind for the pair as traders keenly await the crucial Trump-Xi summit on Thursday. Meanwhile, markets shrug off US-Iran indirect talks.

USD/JPY stands firm near mid-157.00s, close to two-week high

USD/JPY hovers around mid-157.00s in the Asian session on Wednesday, near two-week highs touched last Friday as the BoJ's dovish rate hike continues to undermine the Japanese Yen. Meanwhile, the US Dollar remains firm amid the Fed's hawkish stance, adding support to the pair, though JPY intervention fears cap further gains. Markets pay little heed to the completion of the round of US-Iran indirect talks ahead of Trump-Xi meeting.

Gold approaches $4,300 as Fed hike bets boost USD to fresh high since late July

Gold extends its steady intraday slide through the first half of the European session, reversing a part of the previous day's recovery from sub-$4,300 levels. US Dollar buying remains unabated on the back of the Federal Reserve's hawkish outlook, which is seen as a key factor driving flows away from the non-yielding yellow metal.

Bitcoin outperforms US equities and Gold since mid-August

Bitcoin (BTC) extends its rally, trading above $86,000 at the time of writing on Wednesday after gaining more than 6% so far this week. Strong institutional demand is supporting BTC’s bullish price action, with spot Exchange Traded Funds (ETFs) recording over $714 million in inflows on Tuesday after nearly $1 billion in positive flows the previous day.

Trump meets Xi: Why markets are watching this summit so closely

United States President Donald Trump and Chinese President Xi Jinping are set to meet in Washington on Thursday for a summit closely watched by markets. After several months of easing trade tensions between the US and China, the meeting could determine whether the world's two largest economies extend their truce or enter a new period of uncertainty.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.