RBNZ On Hold
The New Zealand Dollar crashed overnight with the market losing almost 2% in response to the RBNZ August meeting. The market had been broadly expecting a rate hike from the bank on the back of its recent tightening announcement and continued positive data. Several key indicators have highlighted better strength since the last meeting, fuelling expectations that the bank would take action at this juncture in order to help curb upside inflationary risks.
COVID Impact
However, despite better data and built up market expectations, the RBNZ took the decision to keep interest rates at record lows of 0.25% citing the COVID backdrop as its main reasoning. The government has recently had to re-impose COVID restrictions in response to an outbreak of the Delta variant in the country. With this in mind, the RBNZ has opted to keep support in place for longer, anticipating that the fresh restrictions will yield a negative impact on the economic recovery.
Recovery Still On Track
In terms of the recovery then, the RBNZ remains upbeat noting that “Rising vaccination rates across many countries have provided economic impetus. The rise in activity has continued to support demand and prices for New Zealand’s export commodities.” However, in explaining the impact that ongoing COVID developments are having on the economy, the RBNZ said: “the need to reinstate COVID-19 containment measures in some regions highlights the serious health and economic risks posed by the virus. Persistent and elevated health risks are promoting ongoing global supply chain disruptions, and are acting to constrain productive capacity and prolong inflationary pressures.”
Still Looking To Tighten When Possible
Looking ahead, the RBNZ said that the “re-introduction of Level 4 restrictions to activity across New Zealand is a stark example of how unpredictable and disruptive the virus is proving to be.” Despite the uncertainty, however, the bank noted that it is still focused on moving policy back to normal levels as quickly as possible saying “The Committee agreed that their least regrets policy stance is to further reduce the level of monetary stimulus so as to anchor inflation expectations and continue to contribute to maximum sustainable employment.”
While the near-term NZD reaction has been lower, the statement does still maintain bullish risks on the horizon meaning that NZD is unlikely to move materially lower as longer term players hold their focus on a rate hike in the coming months if the country can beat this phase of the pandemic.
Technical Views
NZDUSD
The sell off in NZDUSD has seen price testing below the .6933 level. However, price is now flagging reversal signals suggesting that we might still see a move higher. If we do trade upwards here, the next level to watch will be the .7110 level, ahead of the bear channel top. To the downside, the next level to watch is the .6791 level.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.