RBNZ chose to leave the Official Cash Rate (OCR) unchanged at 2.5%. Governor Wheeler appeared bullish about New Zealand’s economy, saying “economic indicators improving in many of our (New Zealand) trading partners”, with positive global sentiment resulting in lower bank funding costs and reduction of credit costs for both households and firms alike. The overall tone of the statement is certainly hawkish with Wheeler continuing that he “does not want to see financial stability of inflation risks accentuated by housing demand getting too far ahead of supply”, Wheeler continued further, stating RBNZ’s own analysis suggest GDP growth is recovering, as business confidence and construction activity has picked up, while inflation is subdued due to “overvalued New Zealand dollar”
– translation: We will not adopt loose monetary policy for fear of inflation. Despite weak labor market, Kiwi’s economy is strengthening even without us doing anything, hence lets simply keep things this way shall we?
NZD strengthened, gaining >30 pips following the news, a much bigger reaction compared to US GDP results and the dovish FOMC statement. Prices headed into the the consolidation region on Jan 29 which is also between 38.2% and 50.0% Fib retracement levels (Jan 24th High vs Jan 26th Low). The 38.2% Fib is of particular interest with a Morning Star candlestick pattern forming after price threatened to break the level just 2 hours ago. Overhead resistance beyond the 50.0% Fib can be found in the form of 61.8%, close to the 30th Jan high.
Daily chart shows the bullishness of NZD/USD with support 0.835 holding despite yet another attempt to break lower yesterday. Certainly the bullish momentum is not as strong as before, with the rally from Dec lows losing steam with a break in the rising trendline, but Kiwi will be facing strong pull factors in both direction in the near term as traders need to price in both hawkish RBNZ – pro NZD, versus “Risk Off” fears brought by US’s disappointing GDP – pro USD. As RBNZ is unlikely to change its tone at least within the next few months, keep a look out for encouraging economic news in the near term which will align itself to a pro NZD scenario, to push NZD/USD potentially to 0.848 again.