Kiwi Dollar trades lower today ahead of RBNZ’s rate decision on Wednesday morning local time (Tuesday 5:00pm EDT). Price is continuing the southbound journey after a bearish breakout has been confirmed last week. The breakout helped to negate bullish pressure since Mar 15’s rally and reopen up 0.818 level as a plausible target. However price may still find support around 0.828 and 0.835 in the form of consolidation top and bottom for Mar and Jan/Feb respectively.
Stochastic readings continue to point lower, with readings bordering on the Oversold region. However, there is still some distance between current level and the Dec ’12 trough, which suggest that price could still continue lower towards 0.838. A break below 0.838 (previous swing low) may result in acceleration towards 0.835. It is likely that Stoch readings will be deeply entrenched in the oversold region by then, thus enhancing the strength of 0.835 support and potentially pushing price back up, setting range 0.835 – 0.848 back in play.
As price approaches 0.84 round number, which is also incidentally a short-term support as seen back on 19th April and Today’s opening hours, a break below this level may result in acceleration towards current Descending Channel Top. Price could still find support from the Channel Top, but a break into the Channel or even trading lower along the descending trendline is likely as well, noting the strong bearish bias seen on Daily Chart. April 16th low will be a level that bears will want to conquer, and a break below will usher in continuation of the bearish breakout. Stochastic readings suggest that price will be able to continue in its current bear cycle, which increases the likelihood of 0.84 being broken.
Fundamentally, it is important to note that price is on a down trend despite Deputy Governor Spencer saying that a rate hike is possible to curb rising housing prices. Governor Wheeler on the other hand has previously mentioned that the Kiwi dollar is overvalued, and wishes slash the policy rate to bring it down. In this case here, market has taken the side of Governor Wheeler as IMF’s own report suggested the same, publicly declaring AUD and NZD to be 10% overvalued. In this regard, RBNZ’s rate decision on Wednesday will play a huge part to clarify the collective direction between Wheeler and Spencer. Market is expecting a stay of hand from RBNZ this time round, but the accompanying statement will help to shed light on the direction they want NZD to go in 2013.
Therefore, do not be surprised to see if price actually rally strongly after Wednesday should RBNZ stay on the side of Spencer, which will negate all the bearish outlook analysis given above. There is also a good likelihood why RBNZ may adopt this stance – house prices continue to rise, while the dreaded drought has appeared to ease considerably, putting less pressure and reason for a rate cut. Also, chronologically, Spencer’s views are more recent, which should have a larger bearing on RBNZ’s thoughts as compared to Wheeler’s dated statements earlier in Feb.