NZD/USD spikes to 0.6900 after the RBNZ interest rate decision

Written by: Crispus Nyaga
November 11, 2020
  • The NZD/USD pair soared after the RBNZ interest rate decision.
  • The bank left interest rate and the large asset purchases program unchanged.
  • The members also voted to lower the cost of borrowing by providing more financing to banks.

The NZD/USD pair rose to the highest it has been since March 2019 as traders reacted to the Reserve Bank of New Zealand (RBNZ) interest rate decision. It is trading at 0.6900, which is also an important psychological level.

NZD/USD
NZD/USD rises after RBNZ decision

RBNZ interest rate decision

The RBNZ started its two-day monetary policy yesterday and announced its outcome today. As expected, the bank left interest rate unchanged at 0.25%, in line with the guidance issued in March.

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The bank also decided to continue with the large scale asset purchase program (LSAP) with a limit of n$100 billion. Most analysts were expecting the bank to follow the footsteps of the Bank of England (BOE) and boost the purchases. The program will end in June 2022.

In addition, the bank decided to add more stimulus to the economy by providing cheap financing to the country’s banks with the goal of reducing borrowing costs. This financing will be in form of a new Funding for Lending Program that will start in December this year. These loans will have a three-year duration and be offered against high-quality collateral. By providing cheap loans, the bank will incentivise business-owners to borrow and boost their businesses.

Also, the bank provided indirect stimulus by delaying the start of capital buffers for banks by another 12  months. According to the bank, that measure will provide banks with more headroom to support the economy.

Most importantly, the bank remained committed to implementing negative interest rates, with some analysts expecting a 50-basis points cut next year. Still, others believe that this will not be necessary since the economy is recovering at a faster pace than expected. This is evidenced by the recent surge in house prices, better economic numbers, and the potential Covid vaccine.

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NZD/USD technical outlook

NZD/USD
NZD/USD technical chart

The daily chart shows that the NZD/USD price has been on a strong upward trend since bottoming at 0.5468 in March this year. The pair has gained by more than 26% in this period. Today, it moved above the previous double top level of 0.6800 and reached the psychological level of 0.6900. It also moved above the 50-day and 25-day moving averages.

Most importantly, the price is above the ascending green trendline that connects the lowest levels in June, October, and November. That is an indication that bulls are in control, which means that the uptrend will continue. In this case, the next target for the NZD/USD will be the psychological level at 0.7000. Find a good quality forex broker by reading our in-depth broker reviews.