NZD/USD could extend drop on RBNZ inaction

The U.S. dollar remains among the strongest of currencies out there. Not only is it finding support from safe-haven flows amid the current stock market weakness, but it is also in demand due to the growing disparity between monetary policies in the U.S. against other major economies. Whereas the Federal Reserve is well into its tightening cycle, and is planning two additional rate increases in the second of half of this year, other central banks are still keeping interest rates at their historically low levels. 

One such central bank is the Reserve Bank of New Zealand, which is due to make a rate decision later on this evening at 22:00 GMT. The RBNZ is widely expected to keep interest rates unchanged at 1.75%. It last changed rates back in November 2016, when the benchmark Official Cash Rate (OCR) was trimmed from 2.0% to its current rate. Unless the RBNZ hints at a near future hike, the NZD/USD could extend its declines further.

Reflecting the New Zealand/U.S. dollar (NZD/USD) currency pair’s bearish trend, the 200-day moving average is pointing lower, with the faster 21-day exponential and 50-day simple averages having even steeper slopes. The Kiwi has also broken its long-term uptrend and has created a few lower highs and a lower low, too. Most recently, it failed to hold above the 0.6900 support. Thus, the path of least resistance remains to the downside as things stand.

The abovementioned broken 0.6900 level is now the most important resistance to watch – for as long as rates remain below this level, the short-term bias would be bearish. At the time of writing, the Kiwi was trying to break away from the next support at 0.6830. If the bears succeed here then there are little further horizontal supports in sight, which means the sell-off could accelerate. In this case, the bear’s next objective would become the 61.8% Fibonacci level at 0.6715.

About the Author

Fawad Razaqzada is market analyst at FOREX.com and City Index brands of Gain Capital.