Daily Market Recap - NZDUSD

The NZDUSD was weighed down by dovish comments from the Royal Bank of New Zealand (RBNZ) early in the trading session as it declared negative rates remain a possible tool. The announcement sent the NZDUSD down 1.33 percent at the time of writing.

The central bank indicated that a negative official cash rate on overnight deposits can become an option in the near future. The RBNZs openness to further cut interest rates has led certain analysts to postulate negative rates arriving before November this year, further inciting the selloff in the NZD.

The NBNZ stated, however, the status quo at a 0.25 percent interest rate will remain for the time being. The bank also increased its monetary stimulus measures by doubling the large-scale asset purchase program to 60 billion NZD in an attempt to help drive up inflation.

Over in the US, Federal Reserve Chairman Powell announced that the Fed will not contemplate negative rates, in his own words: “I know there are fans of the policy, but for now it‘s not something that we’re considering”. The statement further compounded the woes of the kiwi dollar as traders tend to prefer receiving than paying interest on their holdings.

From a technical perspective, the NZDUSD looks set to decline further towards the 0.59442 support level, which held firm several times over the past months. Price action in the run-up will likely dictate whether the momentum remains in favor of the bears. Should prices correct strongly, a reversal towards the 0.236 Fibonacci retracement level will likely be the first point to be tested.

(Chart Source: Tradingview 13.05.2020)

Looking ahead, news on Chinese industrial output and consumption growths will be key checkpoints in determining the state of the COVID-19 recovery process as well as the reopening of the EU markets. Given that the New Zealand economy rests largely on Chinese demand, a favorable reading of the economic conditions in China should prop up optimism in the kiwi dollar.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.