NZD/USD snaps two-day winning streak as odds of RBNZ rate cut increase after Fed, RBA moves
- NZD/USD takes a U-turn from one-week high after two days of recovery from the multi-month low.
- RBA’s 0.25% rate cut and the Fed’s 50 bps surprise move, fuel speculations that the RBNZ is next in line.
- New Zealand GDT Price Index, Building Permits recently flashed downbeat signals.
NZD/USD declines to 0.6270 amid the Asian session on Wednesday. In doing so, the Kiwi pair snaps the previous two-day winning streak amid increasing hopes that the RBNZ will follow the footsteps of the Fed and the RBA.
While the RBA’s 0.25% rate cut initially pleased the kiwi pair on Tuesday, as the greenback remained under pressure, the Fed’s surprise 50 basis points (bps) rate cut fuelled speculations that the RBNZ is next in the line.
It should also be noted that the RBNZ, in its latest meeting in February, said that both the economy and monetary policy are in a good position.
The reason for the latest central bank actions could be traced from the coronavirus (COVID-19) spread outside China. The pandemic has so far claimed nine lives in the US while spreading faster into the rest of the world. The World Bank Group recently announced up to $12 billion package to countries affected due to the deadly virus.
The risk-tone remains heavy with the S&P 500 Futures down 0.08% to 2,987 by the press time.
On this, analysts at the Australia and New Zealand Banking Group (ANZ) said, “A 50bp cut for the RBNZ appears increasingly likely with the question now moving to ‘when’ rather than ‘if’. In the past 24 hours we have seen the Fed Reserve make an emergency rate cut of 0.5% (target now 1.0% - 1.25%) while the RBA shaved 0.25% off its cash rate (to 0.50%) in a scheduled rate review yesterday afternoon. This is the first since 2008 that the Fed has made an emergency rate cut and the question is now whether the RBNZ will follow suit and bring forward its rate review.”
Looking at the calendar, New Zealand’s latest GDT Price Index slipped lesser than 2.0% forecast to 1.2% but the Building Permits for January dropped well below 0.9% expected to -2.0%.
Investors will now keep eyes on the global policymakers’ reaction to the COVID-19 as well as the US economics for near-term direction.
Technical Analysis
Only if the pair manages to close beyond early-February low near 0.6380 it can avoid visiting 0.6200 and the latest low surrounding 0.6190.