FXStreet (Bali) – NZD/USD is down almost 2 cents, having printed marginal new lows at 0.7015, following the RBNZ unexpected decision to cut rates by 25b to 3.25%, while leaving the door open to ease further.
Market pricing in RBNZ dovishness
The market is now discounting additional easing action by the RBNZ going forward, with the recent buying activity, led by the belief that the Central Bank would still be patient until making up its mind on rates, completely vanishing, while fresh sellers are capitalizing on the more dovish-than-expected outlook by the RBNZ. Adding further downward pressure to the Kiwi, the Reserve Bank of New Zealand’s Governor Wheeler, in his press conference after the monetary policy decision a few minutes ago, reiterated that the NZD level is unjustified and unsustainable and believes it has much further room to fall from current levels.
Fed vs RBNZ: Expanding monetary policy divergence
The instant bearish reaction to the news should be the direction market participants intend to play in the following days, as the monetary policy divergence between the RBNZ and the Fed might soon show evidence of expanding further. Additional positive data by the US, next up US retail sales later on Thursday, should raise the prospects of an early start to the Fed tightening campaign (Sept a possibility), while the RBNZ will likely remain on a dovish rhetoric for the time being. As a consequence, a depreciation below the key 0.70 handle is a real possibility in the next few days, while on the upside, macro offers are likely to be parked around 0.72, with sellers well in control while this level is not reclaimed.
(Market News Provided by FXstreet)