Another central bank with easing bias to monetary policy

23.07.2019 10:55|Conotoxia Ltd Analyst Team

Central banks, interest rates, and monetary policy can slowly bore investors because there is probably no day to mention it. This is a very monothematic thread, but at the moment there is no other more serious topic that could affect the exchange rates on the Forex market. Like today, the fall of the New Zealand dollar.

The New Zealand dollar has today depreciated after information from the central bank, which said it is reviewing its strategy on unconventional monetary policy. This, in turn, may have prompted some investors to speculate that interest rates in New Zealand will remain low for a long time. The Reserve Bank of New Zealand this year "has begun work on a project to refresh our unconventional strategy and implementation of monetary policy" – statement says.

Among the developed economies, the long-term dependence of exchange rates on monetary policy seems to be very important. As a rule, in the long term, with a similar degree of investment risk, capital can flow to currencies where interest rates are higher, because the interest rate on the currency and bonds is higher, which is more advantageous for investors. In turn, where interest rates are lower or are to be lower, investors may sell the currency of such a country because its yield falls or may fall in the near future.

In New Zealand, in May there has already been a cut in interest rates from 1.75 to 1.5 percent. According to economists' estimates, another reduction will take place next month to 1.25 percent. Meanwhile, investors on the interest rate market assume that by the first quarter of 2020 the main interest rate in New Zealand will be at 1 percent.

Daily chart NZD/USD

NZD/USD daily chart. Conotoxia trading platform

In the chart, we can observe the struggle of two currencies for which interest rates are to be lower. A cut is expected both in the USA and in New Zealand. After the recent strong upward trend in NZD/USD, we are currently seeing a correction for which the closest support may be the previous high and the trend line. In the long term, the market may move in a broad trend channel, its upper and lower limit are the key support and resistance areas.

 

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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