NZD/USD – Kiwi Recovering After Surprise RBNZ Rate Cut

NZD/USD has posted gains on Thursday, following sharp losses in the Wednesday session. The pair is trading at 0.6670 in the North American session. In economic news, the RBNZ surprised the markets with a rate cut of 0.25%, lowering rates to 2.25%. In the US, Unemployment Claims dropped to 259 thousand, beating the estimate.

New Zealand’s central bank has not shied away from cutting interest rates. A year ago, the benchmark rate stood at 3.50%, but the RBNZ has been steadily cutting rates, and made a further cut on Wednesday of 0.25%, lowering rates from 2.50% to 2.25%. This surprised the markets, which had expected rates to remain steady. RBNZ Governor Graeme Wheeler singled out China as the biggest risk to New Zealand’s growth, and left the door wide open for further cuts, stating that the central bank would continue to maintain an easing bias. The New Zealand economy has been humming reasonably well, despite the slowdown in China, New Zealand’s largest trading partner. At the same time, inflation levels remain low and the New Zealand dollar remains at high levels, putting a crimp in the country’s export sector. However, the kiwi dropped about 100 points after the rate cut announcement.

A strong US Nonfarm Payrolls is often bullish for the US dollar, but an excellent January report failed to buoy the greenback against its major rivals late last week. The indicator impressed with a reading of 242 thousand, much higher than the estimate of 195 thousand. This was much stronger than the previous (revised) reading of 171 thousand. The US economy has added an average of 225,000 jobs per month since December, an impressive number considering that the economy has softened in the early part of 2016. Why then, did a stellar NFP release not impress the markets? The reason was that wage growth, which has consistently lagged behind other employment indicators, surprised the markets with a decline of 0.1% in January, the first drop in wages since December 2014. This indicator is closely linked to inflation, since an increase in wages means workers have more money to spend. The indicator’s decline means that that Federal Reserve’s inflation target of about 2.0% remains far off, so the Fed, which is keeping a close eye on the weak inflation picture, is unlikely to press the rate trigger at its policy meeting later this month.

NZD/USD Fundamentals

Wednesday (March 9)

• 15:00 RBNZ Official Cash Rate. Estimate 2.50%. Actual 2.25%
• 15:00 RBNZ Rate Statement
• 15:00 RBNZ Monetary Policy Statement

Thursday (March 10)

• 8:30 US Unemployment Claims. Estimate 272K. Actual 259K
• 10:30 US Natural Gas Storage. Estimate -51B
• 13:01 US 30-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate -198.3B
• 16:30 New Zealand Business NZ Manufacturing Index
• 16:45 New Zealand Food Price Index

*Key releases are highlighted in bold

*All release times are EST

NZD/USD for Thursday, March 10, 2016

NZD/USD March 10 at 10:15 EST

Open: 0.6636 Low: 0.6613 High: 0.6709 Close: 0.6676

NZD/USD Technical

• 0.6605 is providing support
• There is resistance at 0.6738

Further levels in both directions:

• Below: 0.6605, 0.6449 and 0.6344
• Above: 0.6738, 0.6897, 0.7011 and 0.7100
• Current Range: 0.6605 to 0.6738

OANDA’s Open Positions Ratio

The NZD/USD ratio is showing little movement, as long and short positions are close to an even split. This is indicative of a lack of trader bias as to what direction NZD/USD will take next.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.