NZD steady ahead of RBNZ rate decision

The New Zealand dollar’s impressive rally has taken a pause on Tuesday. In the North American session, NZD/USD is trading at 0.6814, down 0.10% on the day. The currency has sparkled, climbing 3.0% since November 1st. On Tuesday, NZD/USD touched a daily high of 0.6820, its highest level since March 25th.

NZ central bank expected to ease policy

New Zealand shut down quickly when Covid-19 first appeared on the country’s shores, and the results speak for themselves, as New Zealand has suffered only 25 deaths to Covid. However, the shutdown of the economy and subsequent lockdowns have taken their toll on the economy, as domestic activity slowed at the same time that exports were severely hit by the disruption in global trade.

The New Zealand central bank has not been shy about acknowledging that it is considering negative interest rates, in order to boost the economy. Such a move, which would be unprecedented, could be implemented as early as December, if the economy does not improve. At the upcoming meeting, most analysts expect that rather than lower rates from 0.25% to 0.10%, the bank will introduce a new lending programme, called the Funding for Lending Programme (FLP). This move is intended to provide cheap loans for banks, which will, in turn, lower the costs of loans for consumers, and provide a boost to domestic consumption.

I do not expect the FLP announcement to affect the New Zealand dollar, but if the rate statement (or RBNZ Governor Orr at his press conference) mentions negative rates, this could sour sentiment towards the kiwi and send the currency lower. On the other hand, if the bank presents sounds optimistic about the economy, the NZ dollar’s rally could quickly resume.

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NZD/USD Technical

• 0.6855 is the next resistance line. This is followed by resistance at 0.6890
• We find support at 0.6784. Below, there is support at 0.6748

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