The latest RBNZ report came out at 5:00pm EDT today (5:00am SGT), and the results ain’t pretty, for NZD/USD that is.
First off the bat, Governor Wheeler stated that New Zealand banks are currently more willing to make risky loans, which pushed household debt level higher than he would like to see. The solution he stated would be to increase banks’ collateral, e.g. requiring banks to hold more capital against those loans starting September 30. This is a cooling measure and will almost certainly drive demand for further housing purchases lower. Next he went on to talk about the impact of drought, which is expected to lower 2013 GDP growth by a huge 0.7%.
So lets sum up, New Zealand economy is expected to take a hit with pseudo higher Capital Requirement Ratios for banks (as new requirements apply to current “high risk” loans, not just for new issues). Couple this with the lower GDP estimate, it is easy to see long term NZ economy heading lower, resulting in a weaker NZD/USD in the longer run.
Price was testing the short-term support around 0.846 during late US/ early Asian trade after breaking through it during early US session. The negativity surrounding the report aided bears and act as a technical confirmation for price to continue heading lower. However, price was still managing to hold its own, with the lows post report not able to even break the soft consolidation floor around 0.844, much less test the previous swing low yesterday. However, if bulls thought that the worst was over, they were dead wrong.
Governor Wheeler continued further a few hours later. Besides stating that NZD is ‘significantly overvalued’, Wheeler let the cat out of the bag, stating that RBNZ has been selling NZD secretly in order to push the Kiwi lower. Market collapsed on the revelation, and move further lower when Wheeler threatened further actions, suggesting that RBNZ is ‘capable of further intervention’. This has a huge impact on market sentiment that was generally more bullish after believing that RBNZ will not be able to cut rates in 2013 (because Wheeler said so!). Having RBNZ directly intervening in the market will allow Wheeler to push NZD down which is what he wants, without changing the rates (which he promised), and at the same time not risking further housing inflation. Whether RBNZ’s intervention via secondary market purchases is effective is not the key issue here (most likely it is not, as Central Bank rarely manage to push market direction this way), but doing so underlines RBNZ’s commitment to ensure NZD gets weaker this year.
From a technical perspective, a breakout from the rising channel is now confirmed. Price has manage to break the 0.848 support and also the entire Kumo in one swop, with Stochastic readings clearly indicating a bear cycle underway. However, a short-term technical rebound from here may still happen, especially since 0.838 significant support is not yet tested. Price may either pull back from here to test Senkou Span B (Kumo bottom) and a rebound from the aforementioned level may help to push price to break 0.838 once and for all, opening up 0.828 and also 0.818 as bearish objectives.
To round it all up, Gov Wheeler added more salt into bulls’ wounds by saying that there may be scope to ease in the future should housing prices get under control. With RBA cutting rates yesterday, it seems that RBNZ may want to rescind on its previous assertion of no rate change in 2013. Given current tone and strong commitment to bring down NZD, expect strong reactions from future NZ housing related data, as RBNZ may simply latch on any numbers, however small and insignificant it may be to justify rate cuts.