NZD/USD forms a bearish flag ahead of the RBNZ rate decision
- The NZD/USD pair has formed a bearish flag pattern ahead of the RBNZ decision.
- The bank is expected to leave interest rates unchanged.
- The bearish flag hints at a possible bearish breakout.
The NZD/USD is loitering near its lowest level since November last year ahead of the important interest rate decision by the Reserve Bank of New Zealand (RBNZ). It is trading at 0.7030, which is slightly below the year-to-date low of 0.6940.
RBNZ rate decision preview
The RBNZ started its second monetary policy meeting of the year on Tuesday ahead of the release on Monday morning. In general, analysts expect that the central bank will leave interest rates unchanged at 0.25%, where they have been since last year.
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Still, forex traders will be focusing on the language the bank will use in its one-page monetary policy statement. Most notably, they will be watching at the language around the quantitative easing program, where the bank is buying assets worth N$100 billion to support the economy. In this program, the bank is buying government and local government bonds.
The RBNZ decision comes at an important period for New Zealand. For one, while the country recorded the least infections and deaths, the overall recovery has been slower than earlier expected. In March, data showed that the New Zealand GDP declined by 1.0% in the fourth quarter after rising by 13.9% in the previous quarter.
Further, the housing sector has continued being vibrant. In February, the median house prices surged by 23% to N$780,000 raising concerns that the situation is creating a bubble. This growth is mostly because of local and international demand that has been helped by low-interest rates. Just last week, the RBNZ made plans to intervene in the property market.
The RBNZ decision comes at a time when the NZD/USD pair has dropped slightly as investors price in higher interest rates in the United States. After surging in 2020, the pair has dropped by more than 6% from the year-to-date high.
The daily chart shows that the NZD/USD pair declined to 0.6938 early this year. This price was along the 23.6% Fibonacci retracement level. Since then, the downward momentum has waned and the pair has formed what looks like a bearish flag pattern that is shown in green. It has also moved slightly below the 25-day and 15-day exponential moving averages. Therefore, the pair will likely break out lower as bearish investors target the 38.2% retracement at 0.6700.