NZD/USD extends longest rally since May ahead of central bank statements

on Oct 29, 2014
Updated: Oct 21, 2019
Listen, Wednesday, October 29: The NZD/USD has extended its rally ahead of statements from the US Federal Reserve and the Reserve Bank of New Zealand (RBNZ) due later today.

The pair had gained 0.27 percent to $0.7939 as of 06:29, and was trading 1.5 percent below its 50-day simple moving average of $0.8061. The kiwi has risen for a fourth straight day versus the greenback, its longest winning streak since May, and has rallied 1.5 percent over the period.
Market participants will be paying close attention to the outcome of the Federal Open Market Committee (FOMC) meeting to see whether the central bank will end its quantitative easing (QE) asset purchasing programme.

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Soft US data in the past few days along with comments from Fed official James Bullard earlier this month that the central bank should delay ending QE have put the meeting under further scrutiny.
“You’ve seen such a big move to the downside, but certainly any mention of QE is only going to see things go one way, and that’s a massive risk-on environment,” said Alex Hill, head of corporate FX at NZForex.

The FOMC will release its official statement at 19:00 GMT, just ahead of the Reserve Bank of New Zealand’s monetary policy review, which is expected to confirm that the official cash rate remains unchanged at 3.5 percent. Traders will wait to see whether governor Graeme Wheeler takes a more dovish tone on future hikes, given the low pace of inflation, which is at the bottom end of the central bank’s target range.

Bloomberg reported that according to Morgan Stanley, the New Zealand dollar may drop to a more than two-year low, as a 50 percent dive in milk powder prices fueled speculation that the RBNZ would delay any interest rate hikes.
The price slump for New Zealand’s biggest export, along with weak inflation, would likely prevent the central bank from raising its benchmark interest rate “for some time to come,” Morgan Stanley strategists wrote in a report yesterday.

The bank cut its year-end forecast for the kiwi to $0.76 this month, a level the currency hasn’t traded at since June 2012, from a previous estimation of $0.80. The bank expects the New Zealand dollar to decline to $0.67 by the end of next year, rather than $0.73 as previously anticipated.
The pair found some support in improved business sentiment, in the latest ANZ Business Outlook survey, released at 00:00 GMT, ending seven months of declines.


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