RBNZ next up to walk the central bank tightrope: NZD/USD
Tony Sycamore February 23, 2021 3:05 AM
Tomorrow at midday Sydney time sees the release of the Reserve Bank of New Zealand’s Monetary Policy Statement (MPS) which is expected to provide something for everyone.
At the baseline, key Monetary Policy settings are expected to remain unchanged. The Overnight Cash Rate (OCR) will be left at 0.25%. The Large Scale Asset Purchase program (LSAP) cap is likely to remain at $100bn and the Funding for Lending Program(FLP) will remain in place.
Of more interest will be how the RBNZ manages the high wire balancing act performed so adeptly by the RBA earlier this month, by acknowledging the improvement in the economy since the last MPS in November including;
- The unemployment rate falling back below 5% earlier this month.
- GDP and inflation metrics have been better than anticipated.
- Upside momentum in the housing market has prompted the reintroduction of LVR restrictions to limit financial stability risks.
While providing sufficient dovish forward guidance to placate an interest rate market that has begun to price in interest rate hikes, ahead of the expiry of the RBNZ’s current forward guidance (the RBNZ committed to leaving the OCR at 0.25% for at least 12 months when it cut in March 2020).
If the RBNZ follows the lead of the RBA, their statement will likely strike a tone that acknowledges the improved outlook, but highlights that downside risks remain to an economy still a long way from employment and inflation objectives. Made worse by an appreciating exchange rate that brings us neatly around to what lies ahead for the NZD/USD.
Providing the NZD/USD can consolidate over the next 24 hours, its overnight break above the January .7315 high, it should allow a test of the next upside level at .7400c, with scope to .7500c.
To participate in this up move we favour using a corrective pullback, ideally towards support .7275/55ish to enter NZDUSD longs. Aware that should the NZD/USD break below .7250/30ish, it would be the first indication the short-term upside has stalled and that a deeper correction is underway.
Source Tradingview. The figures stated areas of the 23rd of February 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.