The Reserve Bank of New Zealand (RBNZ) will announce a rate decision at 22:00 GMT+1 today, which will be followed by a statement from Governor Graeme Wheeler. The RBNZ has stated on 21st July that further QE will be required to ensure that future inflation settles near the middle of the target range and a rate cut is expected.
The market and many analysts expect that the RBNZ will cut rates by 0.25%, from 2.25% to 2.0% today despite a rate cut will lead to further booming of the overheated housing market as mortgage rates will be lower. Some even predict another rate cut may happen in November. The market expectations weigh on the New Zealand dollar.
Even if rates are cut to 2%, the likely subsequent fall of the NZD may not be a sharp one for four reasons. Firstly, the 2% rate is still comparatively higher than the rates of other major currency countries. Secondly, the dollar strength has been fading since yesterday. Thirdly, the market has priced in to an extent. If the result is in line with the expectation, then the NDZ may fall initially then followed by a rally as the market will price out. The NZD could fall deeper if the rate cut is accompanied by more than expected additional QE measures. Fourthly, the overall economic outlook seems to be positive.
On the daily chart, NZDUSD has been oscillating in an uptrend channel since 20th Jan, the current price is above all the EMAs, the trend is still upward. Yet a head and shoulder pattern has been formed since mid-June, indicating accumulated upside selling pressure. The current price section is between 0.7053 and 0.725. NZDUSD is likely keeping on oscillating in a range bound. The 4 hourly KD indicator is around 90, indicating a pullback.
Upside resistances at 0.725 followed by the previous high of 0.732 on 12th July.
Downside uptrend line support at 0.722 followed by the daily time frame 8 EMA at 0.7166, the 20 EMA at 0.714, 0.7053, and the significant support level at 0.688.
The dollar future index has pulled back 1% from the high of 96.46 on 9th Aug to the intra-day low of 95.38 on Wed 10th Aug. As a result, it has provided a support to NZDUSD. The current price keeps on falling. Yet, the 4 hourly time frame KD indicator is below 20, indicating a potential rebound. In that case, the NZDUSD will likely pull back.
Keeping an eye on the RBNZ’s rate decision and the trend of the dollar as the two factors will determine the trend of NZDUSD.