NZD/USD darts lower as RBNZ hints at future negative interest rates

NZD/USD darts lower as RBNZ hints at future negative interest rates
Written by:
Crispus Nyaga
23rd September, 04:16
  • The NZD/USD declined slightly today after the RBNZ interest rate decision.
  • The bank left interest rate unchanged but signaled that negative rates were still in play.
  • It also signaled that it will start another funding program for banks by the end of the year.

The NZD/USD sparked lower as the market reacted to the latest decision by the Reserve Bank of New Zealand (RBNZ). The pair is trading at 0.6622, which is a few pips higher than the intraday low of 0.6600.

NZD/USD
NZD/USD falls after RBNZ decision

RBNZ signals more support necessary

The RBNZ concluded its two-day monetary policy meeting and left its interest rate unchanged at 0.25%, as most analysts were expecting. The bank also left the limit of its Large-Scale Asset Purchase (LSAP) program unchanged at N$100 billion ($66 billion). This program will help lower borrowing rates of customers and businesses.

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At the same time, the bank signalled that it was willing to provide more support for the economy. While it is actively considering negative interest rates, the bank signalled that it will do so as a measure of last resort. Before then, it said that it was considering another tool that will provide funding for lending program for banks before the end of the year. The bank said:

“Having an FLP (Funding for Lending Program) in place earlier would provide certainty to financial institutions planning their funding needs, and speed up the transmission of the program by allowing banks to replace funding as it matures over time.”

More support will be needed as New Zealand goes through its toughest period in decades. Recent data showed that the country’s GDP declined by 12.2% in the second quarter. That was the biggest contraction since the data started being recorded in 1987. This decline was spread across all industries, with construction, manufacturing, and household domestic spending falling by 25.8%, 13%, and 12%, respectively.

Still, New Zealand economy performed worse than Australia, whose economy shrank by 7%. But it also performed better than the United States and the UK, whose economies weakened by 32% and 20%, respectively.

The RBNZ decision came at a time when New Zealand has declared another “victory” over the second wave of the pandemic. It also came a few weeks before the country’s election.

NZD/USD technical outlook

NZD/USD
NZD/USD technical outlook

The daily chart shows that the NZD pair made a shooting star pattern on September 18. This is usually a bearish pattern that signals that an asset’s price will continue to fall. Since then, the pair has dropped for the past three consecutive days and is now at the lowest level since September 9. The price is also along the lower line of the Donchian channel and slightly below the pivot line. Therefore, I suspect that the pair will continue falling today as traders aim for the first support at 0.6565.

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