Kiwi underperforms as investors bet that RBNZ will cut rates ove

Expectations at time of writing, drawn from short-term rate futures, imply an 80% chance that the RBNZ cut of a -25 bps on Wednesday, with the rest of the 20% attributed to a hold. Although inflation has subsided, the softening employment situation and weak business confidence suggest that further easing is warranted, a decline in NZD and an improvement in the housing market may allow politicians to stay out this month. We believe that even if RBNZ leaves interest rates unchanged, the continuing uncertainty in the region should keep the bank dovish and the risk for NZD is downside.

After that though, the currency’s direction will depend on the signals about future easing.

If the RBNZ holds the interest rate, it can catch many people unprepared and this would probably be the most bullish scenario for the NZD pairs. In that case we can see NZD/USD to test 0.6400 resistance. If the interest rate is reduced (as expected), but still the bank refrain from being overly dovish, then it could print a minor rebound. With a dovish cut, we can see a break below $ 0.6320.

Purely technically, NZD/USD has been trading in a downward price channel since early November on the four-hour chart. The channel model was formed on November 4. Earlier this morning, the NZD tested the 0.6365 resistance zone formed by the upper trend line of the bearish channel and the 200-day EMA on the four-hour chart, but stepped back.

If this resistance area continues to hold, then intraday signals remain in favor of the bears and we can watch the trade continue within the downside channel before the decision tomorrow.

Comment:

The beaten-up New Zealand dollar soared 1% on Wednesday after the central bank unexpectedly left interest rates on hold. As you can see the kiwi tested 0.6420 as we mentioned in this scenario and now the price consolidate around $ 0.64.