NZD/USD Price Forecast: Continues to underperform on RBNZ’s dovish policy

New Zealand Dollar Price This week

The table below shows the percentage change of New Zealand Dollar (NZD) against listed major currencies this week. New Zealand Dollar was the weakest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.91%	0.51%	2.17%	-0.05%	-0.18%	0.70%	0.55%
EUR	-0.91%		-0.50%	1.17%	-0.98%	-1.11%	-0.25%	-0.39%
GBP	-0.51%	0.50%		1.78%	-0.49%	-0.62%	0.25%	0.11%
JPY	-2.17%	-1.17%	-1.78%		-2.13%	-2.35%	-1.51%	-1.63%
CAD	0.05%	0.98%	0.49%	2.13%		-0.07%	0.75%	0.60%
AUD	0.18%	1.11%	0.62%	2.35%	0.07%		0.88%	0.72%
NZD	-0.70%	0.25%	-0.25%	1.51%	-0.75%	-0.88%		-0.15%
CHF	-0.55%	0.39%	-0.11%	1.63%	-0.60%	-0.72%	0.15%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent NZD (base)/USD (quote).

On Wednesday, the RBNZ surprised markets by announcing a bigger-than-usual interest rate cut of 50 basis points (bps) that pushed the Official Cash Rate (OCR) lower to 2.5%. Economists had already anticipated the RBNZ to loosen monetary conditions further, however, the rate cut size was expected to be 25 bps.

The RBNZ has signaled that it will cut interest rates further in the near term, citing downside risks to economic growth and inflation.

Meanwhile, upbeat US Dollar (USD) has also been a drag on the Kiwi pair. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near the two-month high near 99.00.

In Thursday’ session, investors will focus on the speech Federal Reserve’s (Fed) Chair Jerome Powell at 12:30 GMT.

NZD/USD trades close to an almost six-month low around 0.5740. The near-term trend of the Kiwi pair is bearish as it stays below the 20-day Exponential Moving Average (EMA), which trades around 0.5833.

The 14-day Relative Strength Index (RSI) slides below 40.00, suggesting that a fresh bearish momentum has been set in.

Going forward, the asset could slide towards the round-level support of 0.5700 and the April 10 low of 0.5628, if it breaks below the October 8 low of 0.5740.

In an alternate scenario, the Kiwi pair would rise towards the June 19 high of 0.6040 and the September 11 low of 0.6100 if it manages to break above the psychological level of 0.6000.

NZD/USD daily chart

Economic Indicator

RBNZ Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) announces its interest rate decision after each of its seven scheduled annual policy meetings. If the RBNZ is hawkish and sees inflationary pressures rising, it raises the Official Cash Rate (OCR) to bring inflation down. This is positive for the New Zealand Dollar (NZD) since higher interest rates attract more capital inflows. Likewise, if it reaches the view that inflation is too low it lowers the OCR, which tends to weaken NZD.

Why it matters to traders?

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by interim Governor Christian Hawkesby's press conference.

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