RBNZ Holds OCR at 3.50% and Talks Down the NZD

RBNZ Holds OCR at 3.50% and Talks Down the NZD

As expected, the RBNZ (Reserve Bank of New Zealand) held its official cash rate, OCR at 3.50%. This is the second meeting in a row that the RBNZ held the benchmark interest rate at 3.50%, following 4 straight rate hikes. “It is prudent to undertake a period of monitoring and assessment before consider further policy adjustment.” The fact is the bank is still looking to raise rates, but wants to pause after raising it from 2.50% to 3.50% this year. Graeme Wheeler, the RBNZ’s governor, did assure the market that “some further policy tightening will be necessary. Its about timing, and investors are expecting a rate hike in Q2 2015.

NZ flag

The bank also noted softer commodity prices, and a lower inflation forecast, which might be the dovish part of today’s RBNZ statement.

What really moved the market was governor Graeme Wheeler’s comments regarding the exchange rate of the New Zealand Dollar. He said that the current level is “unjustified and unsustainable”. Let’s not read too much into his interpretation of what the “fair” price should be. He is simply talking down the NZD for the sake of the nation’s economy because it is heavily dependent on exports, and a softer kiwi can make NZ exports more competitive. Wheeler added that he expects “a further significant depreciation” in the NZD.

The market reacted by selling the NZD across the board.

The NZD/USD was already bearish, and continued to dip to a 7-month low. the 2014-low at 0.8051 remains in sight. A break above 0.8350 will be needed to signal a bullish correction or meaningful consolidation.

nzdusd 4h chart 9/11
(NZD/USD 4H Chart 9/11, click to enlarge)

NZD/JPY has been bullish, but today’s reaction held it under 88.00. The pair is still trading in a rising channel, but a break below 87.20 should clear the rising channel support. A break below 87.00 would clear the simple moving averages (SMAs) in the 4H chart and should open up a bearish outlook at least toward the 85.75 August low, especially if the 4H RSI dips below 40 and tags 30.

nzdjpy 4h chart 9/11
(NZD/JPY 4H Chart 9/11, click to enlarge)

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.