This week, the Central Bank of New Zealand (RBNZ) decided to lower the main interest rate from 1.75 percent to a record low of 1.5 percent. Such a decision of the RBNZ was expected by the market. Nevertheless, the NZD/USD rate has reacted to it in a rather interesting way, which may have its consequences in the future.
The RBNZ decision taken in May concerned the first cut of interest rates from November 2016. It was stated in the press release that it is necessary to support employment prospects and inflation in line with the central bank's objective in conditions of slower global economic growth. Decision makers added that the lower interest rate path in the forecasted period is appropriate, which confirms the balance of risks and the prospect of the economy in the near future.
Meanwhile, the NZD/USD pair has been declining for several weeks, perhaps discounting the decision of the central bank. It is possible that during this period we observed a known saying - buy rumors, sell facts. Investors seemed to be selling NZD, and then, after the central bank's decision, they started to buy the currency. As a result, on the NZD/USD weekly chart a hammer candlestick pattern has been forming.
Chart: NZD/USD, W1. Conotoxia trading platform.
Moreover, the mentioned pattern is formed at the lower limit in the trend channel and near the low of wave A in a simple correction marked as ABC. This may indicate a potential end to a downward correction of the NZD/USD currency pair. Support is also determined by the equality of A and C waves. If such assumptions are correct, then the New Zealand dollar could begin to make up losses against the US dollar in the near future.
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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