NZD/USD turns lower after dovish RBNZ rate decision – QE boosted

on Aug 12, 2020
  • The NZD/USD pair declined after a dovish interest rate decision by the Reserve Bank of New Zealand (RBNZ).
  • The bank left interest rate unchanged at 0.25% and boosted its QE target to $100 billion.
  • The central bank also hinted at negative interest rates.

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The NZD/USD pair declined after the dovish interest rate decision by the Reserve Bank of New Zealand (RBNZ). The pair is trading at 0.6555, which is the lowest it has been since Friday last week.

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NZD/USD drops after the dovish RBNZ decision

RBNZ interest rate decision

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The RBNZ started its meeting yesterday and concluded with the interest rate decision today. The bank left interest rate unchanged at 0.25% as most analysts were expecting. The bank also decided to expand its Large Asset Purchase program (quantitative easing) to $100 billion from the previous $60 billion. It has already bought assets worth more than $23 billion worth of government bonds.

It also pledged to provide more stimulus to support the economy, as the coronavirus pandemic continues.

In the statement, the bank commended the government for containing the pandemic, which has led to more activity in the economy. This is evidenced by the recent employment and output data. However, the bank lamented that the “severe global economic disruption caused by the pandemic is persisting.” The bank said:

“Monetary policy will continue to provide important economic support in the period ahead. Its effectiveness is evidenced by retail banks’ lower funding costs and lending rates, which are benefiting businesses and households.”

The bank expects that the economy will continue recovering in the third quarter. It sees its growth reaching pre-covid-19 levels in the fourth quarter. Also, it expects that the unemployment rate will increase to 8% later this year and drop to below 6% in the next three years.

Most importantly, the bank said that it could be forced to lower interest rates below zero if the economic conditions worsen. Negative rates would lower short-term benchmark rates and put downward pressure on the exchange rate. Other notable tools in the bank’s toolbox are purchasing of foreign assets, term lending and expand the LSAP program.

The RBNZ interest rate decision came a day after New Zealand announced its first coronavirus case in almost three months.

NZD/USD technical outlook

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NZD/USD technical analysis

The weekly chart shows that the NZD/USD pair has been in a steep upward trend after falling to 0.5478 in March. The pair reached a high of 0.6723 in July. However, the pair has dropped in the past three consecutive weeks. The price is also slightly above the 50-day and 100-day exponential moving averages while the RSI has turned lower a bit. It is also along the 50% Fibonacci retracement level. Therefore, the price is likely to continue falling as bears target the next support at 0.6400.

NZD Forex