Forex: NZD/USD down ahead of RBNZ rate decision; analysts mull

on Dec 11, 2013
Updated: Oct 21, 2019

**, Wednesday 11 December:**

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The NZD/USD yesterday fell to 0.8256 after dairy exporter Fonterra disappointed investors by keeping unchanged its forecast payout to farmers.
Michael Johnston, a senior dealer at HiFX in Auckland, said that expectations had been for an increase and the surprise decision had pushed the kiwi lower, given the strong reliance of New Zealand’s economy on dairy exporting.

In the result, the NZD/USD has retreated from the 50 percent Fibonacci retracement of the downtrend from October at 0.8313 to be currently sitting at the neckline of an inverted head and shoulders pattern (see chart below). The psychological level is also in near convergence with the 38.2 percent Fibo at 0.8258.

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Although the RSI momentum indicator on the 4-hour chart has been in a steady uptick since 22 November, the quote may slip further as the impetus gauge tests its line of support. If that proves to be the case, the bulls could be rejuvenated by the rising line of support which limited the downside for the NZD/USD last week (purple line).
The highlight today for the kiwi will be the Reserve Bank of New Zealand’s Interest Rate Decision, due out at 20.00 UTC. Analysts widely anticipate that the central bank will leave the official cash rate (OCR) unchanged at 2.5 percent but there will be close scrutiny of any forward guidance in the accompanying statement.

The RBNZ has not touched the OCR since the 50 basis points cut in March 2011, but policymakers have clearly signalled that interest rates will rise next year because they do “not want to see financial or price stability compromised by continued high house price inflation”. The extent and timing of rate-tightening depends on the exchange rate and inflation pressures arising from a booming housing sector.

With the trade-weighted kiwi up around 2.4 percent since the last time the RBNZ gave a full forecast update, analysts at Morgan Stanley like the idea of going long the AUD/NZD ahead of the meeting, noting that “a now very aggressive 100 basis points are priced for the RBNZ over the next 12 months”.
A first rate hike was being picked to occur around April next year but markets are currently pricing in a 50 percent chance of a hike by 25 basis points in January. That “would require the RBNZ to strongly signal imminent hikes” today, according to Westpac analysts.
New Zealand’s economy has been slightly stronger than expected as of late, but the local dollar is also more expensive. “These surprises roughly offset one another, so we expect the RBNZ will retain its previous plan.” The bank still expects March or April to be the earliest start for rate-tightening.
In addition, RBNZ-watchers at Westpac stress that today’s meeting “could be used to talk the high NZD down”, given that the kiwi has remained resilient to the recent round of surprisingly good US economic data.
Economists at Goldman Sachs also believe that the RBNZ will disappoint those looking for hikes as soon as January.
Currently the NZD/USD is trading at around 0.8269, down 0.51 percent intraday.
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NZD Forex