Forecast for the RBNZ Rate Decision - How Will It Impact NZD/USD?

Summary: The New Zealand dollar has been consolidating above support at 0.6600, and with the Reserve Bank of New Zealand rate decision on hand later today, the...

The New Zealand dollar has been consolidating above support at 0.6600, and with the Reserve Bank of New Zealand rate decision on hand later today, the news could trigger a breakout in NZD/USD. Which way will the pair go?The Reserve Bank of New Zealand is widely expected to cut rates by 25bps to 7.75 percent for the second meeting in a row, according to 14 of the 15 economists polled by Bloomberg News. It is telling, though, that the last economist actually anticipates a 50bps cut. Indeed, the RBNZ signaled during their last meeting that additional reductions were on the way, as RBNZ Governor Alan Bollard said that as long as the inflation outlook "continues to improve and there is no excessive exchange-rate depreciation, we would expect to lower rates further." Since the RBNZ's first 25bp cut in five years on July 23, though, the New Zealand dollar is down over 11 percent against the US dollar, but this is unlikely to be deemed "excessive" and thus, we anticipate that a 25bp cut is in the works. The key to the New Zealand dollar's reaction, though, will be RBNZ Governor Bollard's post-meeting commentary. Credit Suisse overnight index swaps are already pricing in nearly 150bps worth of rate cuts within the next 12 months, but if Mr. Bollard mimics his policy statement from July, this sentiment will be exacerbated and the New Zealand dollar will likely plunge. On the other hand, suggestions that the RBNZ may pause next time could allow the currency to recover from near-term support. Related Articles: Daily Technicals, New Zealand Dollar Currency Room NZD/USD (Daily Chart) Source: Intellicharts The "Big Picture" for NZD - NZD/USD is struggling to hold above near-term support at the 38.2% fib of 0.3971 - 0.8219 at 0.6607. NZD/USD (Daily Chart) Source: Intellicharts A Closer Look - Test of fibonacci support looks more like consolidation. RSI on the daily charts is creeping higher, but still oversold. Watch for divergence, as a bullish RBNZ rate decision (signals the bank will leave rates steady next time) could lead NZD/USD higher. On the other hand, a rate cut along with indications of future cuts could lead to another test of 0.6600, if not a break lower. NZD/USD (Hourly Chart) Source: Intellicharts Intraday Charts Signal Potential For A Break Higher - If we didn't have the RBNZ rate decision on hand, I'd say there's a clear upside potential for NZD/USD on a short-term basis. Unfortunately, event risk like rate decisions can skew these probabilites. Overall, my bias is in favor of a move to the upside on a break above 0.6725 (short-term trendline resistance), though a bearish result from the RBNZ is likely to trigger a move down toward 0.6600 once again. Written by Terri Belkas, Currency Strategist of DailyFX.com E-mail: [e-mail]

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