NZD USD remains pressured ahead of RBNZ
As the US dollar took a bit of a breather on Wednesday after a prolonged, three-week rally, kiwi traders were positioning ahead of the Reserve Bank of New Zealand’s rate decision, monetary policy statement, and press conference, all scheduled for Thursday morning in Wellington (Wednesday evening in New York and London). Markets are not expecting any changes to interest rates or monetary policy from the RBNZ at that time.
The RBNZ’s last statement in March indicated that the central bank was not expecting to raise rates anytime soon from its current record low of 1.75%, due to slowing economic growth and weak inflation. At that time, Acting Governor Grant Spencer stated that “monetary policy will remain accommodative for a considerable period.” If this dovishness continues to prevail on Thursday, the very likely prospect of Fed interest rates overtaking RBNZ rates as soon as June could serve to place additional pressure on NZD/USD over both a short- and medium-term horizon.
From a technical perspective, NZD/USD has continued to breakdown since mid-April, in large part due to a robust and persistent rally in the US dollar. During the course of this tumble, NZD/USD has broken down below key support factors including the 0.7200 area, the 200-day moving average, and most recently, the 0.7050 prior support area. Since that most recent breakdown, the currency pair has extended its fall, establishing a new year-to-date low around 0.6948 as of Wednesday. With any continued dovishness from the RBNZ on Thursday, along with sustained support for the US dollar, NZD/USD could be poised to drop towards further lows. Any such bearish resumption amid the RBNZ decision could pressure NZD/USD back down towards a major support target around the 0.6800 level.
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