NZD/USD forecast: signal ahead of the RBNZ interest rate decision

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on Apr 7, 2024
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  • The Reserve Bank of New Zealand will deliver its interest rate decision on Wednesday.
  • Economists believe that the bank will leave rates unchanged again.
  • New Zealand’s inflation is falling as the country remains in a recession.

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The NZD/USD exchange rate will be in the spotlight this week as the Reserve Bank of New Zealand (RBNZ) delivers its second interest rate decision of the year. After retreating to a multi-month low of 0.5940 on Monday, the pair rebounded to above 0.6000 after the US non-farm payrolls (NFP) data.

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RBNZ decision preview

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The biggest forex news of this week will be the upcoming RBNZ decision set for Wednesday. In it, economists believe that the bank will decide to leave interest rates unchanged at 5.5%, where they have been in the past few months.

The RBNZ, like other central banks, has hinted that it is done with hikes. As a result, the key catalyst for the Kiwi will be the hint on when the bank will start cutting interest rates.

Recent data showed that the central bank is winning its battle against inflation. According to the country’s statistics agency, the headline Consumer Price Index (CPI) came in at 4.7% in Q4’23, down from 5.8% in the previous quarter.

New Zealand’s inflation has been in a strong downward trend after peaking at 7.3% in 2022. Still, the figure remains significantly higher than the historical average. It is also more than double the RBNZ target of 2.0%.

At the same time, the economy is not doing well. The most recent data showed that the economy contracted by 0.3% in Q4 after retreating by 0.6% in Q3. This means that it has moved into a technical recession. As such, the bank may hint that it will start cutting rates in the next few meetings to boost the economy.

The RBNZ decision will come a few days after the US published strong nonfarm payrolls data. According to the BLS, the unemployment rate retreated to 3.8% in March as the economy added over 300k jobs. Wage growth continued rising.

Therefore, analysts believe that the Fed will not cut rates in May and June as previously predicted. The bank may start slashing rates in July and followed by a final one in December.

NZD/USD forecast

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NZD/USD chart by TradingView

The daily chart shows that the NZD to USD exchange rate peaked at 0.6370 in January as hopes of Federal Reserve rate cuts increased. It then crashed hard to a low of 0.5940 last week as these hopes faded. 

The pair has remained much lower than the 50-day and 25-day Exponential Moving Averages (EMA). It also retested the important Woodie pivot point at 0.6035. Therefore, the outlook for the pair is bearish, with the initial target being at 0.5940, its lowest point last week. A break below this support will see it drop to the first support at 0.5850.

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