NZD/USD dropped lower following yesterday’s North American close but support was found in around the 0.7215 area and a range has been playing out since. The Reserve Bank of New Zealand will announce their latest cash rate and provide a statement at 17:00 EST today which is likely to cause volatility to the pair.
The RBNZ was dovish at their last meeting considering that inflation had just dropped back within its target range, albeit the lower bound of the range. The central bank adopted a neutral stance earlier this year which had surprised some market participants that had expected a shift to a more hawkish stance.
The May statement revealed that the RBNZ intends to keep monetary policy accommodative for a considerable period and that policymakers remained concerned on developments outside of the domestic economy.
Since the last statement, strong retail sales figures were reported for the first quarter although GDP fell short of expectations once again. The central bank is likely to state that the growth outlook remains positive, similar to the prior statement.
Any developments in the housing market will be important especially with the recent downgrade of major banks in Australia and Canada. The last statement indicated that tighter lending standards have attributed to a moderation of house price inflation but there was some uncertainty whether this would be sustained.
NZD/USD has broken below a rising channel on a 4-hour chart and has dropped below a horizontal level at 0.7238 which could be hinting of a broader turn. A break below 0.7185 would provide a stronger signal that the currency pair is carving out a top as the level has held the pair higher on several attempts since June 7th and a break would also serve to set a succession of lower highs and lower lows.
In the event of a bullish reaction to the central bank meeting, resistance at 0.7311 marks the January close which was the highest since early 2015.
Out of the US today, existing homes sales were reported to rise 1.1% in May to beat the estimate for a decline of 0.5%. The data did not have a significant impact on the dollar but a late day decline in the trade-weighted index (DXY) has served to erase most of yesterday’s gains. Today’s daily close will be important as a potential bearish engulfing candle on a daily chart could attract sellers.
NZD/USD 4-Hour Chart