One of the most interesting events of this week, which investors were waiting for, was certainly the decision on interest rates of the Reserve Bank of New Zealand (RBNZ). Both the market and the surveyed economists were almost certain that the New Zealand central bank would lower interest rates. To the surprise of the market, this did not happen.
The decision taken by RBNZ on November 13 was all the more surprising because the market has predicted the central bank's decisions quite well over the past few months and such surprises have hardly occurred. Hence, the huge increase in NZD at night since most of the traders who were looking for interest rate cut seemed to close their short positions. At one point, NZD gained over 1 percent against USD, which is the largest increase in nine months.
We would like to remind you that the New Zealand Reserve Bank left the main interest rate at a record low of 1 percent. Interest rate market with probability exceeded 70 percent expected a cut to 0.75 percent, while only 5 out of 21 economists surveyed by Bloomberg assumed that the interest rate would not change.
Policymakers stated that employment remains close to the maximum sustainable level, while inflation remains within the central bank's target. The Monetary Policy Committee also noted that the threats to the economy were directed downwards in the near future and further monetary stimulation would be added if needed. In addition, the RBNZ will publish the proposed framework for alternative monetary policy tools in early 2020, including negative interest rates. The interest rate market currently assumes the probability of interest rate cuts in New Zealand at 40 percent by mid-2020
NZD/USD daily chart. Conotoxia trading platform
From the point of view of the technical analysis, support in the 0.6330 area has been confirmed again today. As a result, the NZD/USD pair can once again approach the neckline in the inverted head and shoulders pattern. The textbook target for this pattern may be in the area of 0.6665. Only a fall below the mentioned level of 0.6330 could undermine the strength of buyers.
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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