RBNZ Inspired Reversal Takes NZD/USD Back Into Positive Territory For The Week

The Kiwi dollar posted a strong gain against most of its counterparts as of the European close as traders bought up the currency following a less dovish than expected monetary policy meeting. Today’s single day advance has erased early week losses in NZD/USD to take the pair back into positive territory for the week.

The RBNZ left rates unchanged at 1.75% which was largely expected. The accompanying statement contained some subtle changes that spurred optimism among market participants.

GDP growth in the first quarter was below expectations but the central bank was positive surrounding future growth, unchanged from it’s response to slightly weaker growth in the prior quarter. The RBNZ added, however, that the growth outlook will be supported by changes outlined in the recently released Budget 2017.

Budget 2017 reveals that the government intends to invest 11 billion (NZD) in new capital over the next three years, in addition to already allocated investments, which marks the largest increase in decades. The budget outlined expectations for economic growth around 3.1% over the next five years and for inflation to rise above 2% in 2019.

The RBNZ also removed a clause from its prior statement that stated developments ahead of the meeting were considered neutral for the stance of monetary policy. The exclusion hints of a shift towards a more optimistic stance.

NZD/USD spiked to a high of 0.7269 from 0.7214 prior to closing out the hourly candle at 0.7244. A steady bid since the meeting shows the pair touching a high of 0.7273 at the North American open. NZD/USD was last seen trading at 0.7264 for a gain of 0.68%

The New Zealand dollar and Canadian dollar were the best performers for the session, both posting roughly similar gains versus the greenback. The loonie was lifted by a stronger than expected retail sales report and a recovery in oil prices.

The US dollar index (DXY) was last seen trading relatively unchanged on the day. The index extended some losses following yesterday’s North American close but reversed higher in a low momentum recovery in Asian trading to erase earlier losses. DXY continues to hold above support at 97.54 and with further support at 97.35, the price action over the past two sessions has not jeopardized the recent upward momentum seen in the greenback.

Out of the United States today, weekly unemployment claims met expectations with 241,000 claims filed last week. The house price index rose 0.7% in April which was ahead of the consensus for a rise of 0.4%.

On a 4-hour chart, NZD/USD is on track to post a bearish engulfing candle after printing five consecutive bullish candles since the RBNZ meeting. The bearish print stands to put some pressure on the pair over the near-term. Support for the pair is found at 0.7238 which should keep the pair higher in order to maintain the upside momentum created by today’s RBNZ meeting. Resistance for the pair remains at 0.7311 as the level held the pair lower last week.

NZD/USD 1-Hour Chart

NZDUSD 4H June 22

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.