The Reserve Bank of New Zealand (RBNZ), so the central bank of New Zealand did not change interest rates at the meeting ending on September 25. The main interest rate in line with market expectations remained at 1 percent, and the New Zealand dollar strengthened after this decision.
The interest rate market estimated with a probability of just over 20 percent the possibility of interest rate cuts, as we wrote in Monday's comment. Therefore, nothing special was expected after this meeting. Nevertheless, the NZD/USD exchange rate is in a crucial place and therefore it is worth paying attention to what is happening on the antipodes.
It is worth recalling that the RBNZ reduced the main interest rate from an already historically low level of 1.75 percent to 1.5 percent in May, and then cut it by 50 basis points in August from 1.5 to 1.0 percent. The statement stated that the new information did not justify a significant change in monetary policy outlook. Employment is close to the maximum sustainable level and inflation remains within the target range, but below 2 percent.
The main concerns for the central bank have not changed. World trade and other political tensions remain high and continue to undermine global growth prospects, weakening New Zealand's demand for goods and services. In New Zealand, business confidence remains low, partly reflecting uncertainty and low profitability in some sectors, which has an impact on investment decisions.
Global long-term interest rates remain close to historically low levels, which is in line with low expected inflation and future growth rates. Therefore, interest rates in New Zealand can be expected to be low for longer, the statement added.
Some investors, however, probably expected a more dovish statement of the RBNZ, as leveraged funds were to close short positions, which seems to lead to an increase in the NZD/USD even despite a strong dollar on the broad market. NZD/USD is trying to defend the four-year low, which has been set under the level of 0.6250.
NZD/USD weekly chart. Source: Conotoxia trading platform
In 2015, a strong downward trend in this area ended, hence from the technical analysis point of view this area may now also be crucial for observation at present, as it provides significant technical support.
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.
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