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RBNZ leaves interest rates on hold. Kiwi exchange rate still “unjustified”

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The Reserve Bank of New Zealand released its monthly monetary policy late last night and as widely expected, left interest rates unchanged at 3.5%. The monetary policy statement was strangely missing any hints of hawkishness seen in the previous monetary policy statement. Undoubtedly, the Kiwi sunk against most of its peers, especially against a stronger and volatile US Dollar.

In the statement, the RBNZ acknowledged the positive effects of lower oil prices for Oil importing nations and the effects on inflation, while calling the current situation optimal for growth. However, because the Kiwi Dollar was still at a high exchange rate, the current situation of low inflation combined with declining crude oil prices were being seen detrimental to growth. In this aspect, the RBNZ continued to maintain that the Kiwi’s exchange rate was “unjustifiably high” and expect further depreciation in the Kiwi dollar.

In regards to future interest rate changes, the RBNZ concluded by stating that further changes would depend in the emerging flow of economic data from the region.

NZDUSD – Technical Analysis

The Kiwi weakened against the US Dollar significantly yesterday after the RBNZ’s monetary policy statement, which was viewed as being dovish, in stark contrast to the FOMC meeting, which showed that the Federal Reserve was on track to raising interest rates later this year. The NZDUSD declined as much as 1.7% yesterday, closing the day near 0.7315 levels.

From the weekly charts, the current price sits near a major support level. A bounce from 0.7315 regions could see NZDUSD rally back as much as 0.768 which is the next immediate resistance level, while to the downside, should 0.7315 give way, the next major support comes in at 0.6698 levels.

NZD1

 

When switching to the monthly view, we do notice a larger triangle or an ascending triangle/wedge, which gives a further downside target towards 0.497. However this is something which we expect will take months if not years. In the short term however, any bounce from 0.73 is most probably result in a rally to retest the broken support at 0.768 for resistance, before we can expect to see any meaningful declines.

NZD2

The monthly chart also shows the possibility of a larger inverted head and shoulders pattern that is still shaping up. However, considering the slope of the neckline, it will be a close call as to the validity of the pattern, which we reiterate again is still a “potential” pattern and one which is not complete yet.

Overall, NZDUSD looks bearish on the longer term but offers quite a few possibilities of bouncing off the major support level to the upside.

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