With expectations high ahead of today’s Reserve Bank of New Zealand monetary policy decision, let’s look at a few key New Zealand dollar levels, depending on the outcome of the decision.
25 Bps Cut And No Firm Commitment:
NZD/USD could be headed back toward 0.77. Markets have high expectations and still NZD/USD is trading near its highest levels in over a year. Falling short of these expectations isn’t an option for the RBNZ if it wants to weaken the currency — unless it sees the housing market as a greater threat, at which point other tools should be available.
25 Bps Cut And Firm Commitment To Further Easing:
I still see NZD/USD edging higher in this scenario as this is the least the markets appear to be expecting having already rallied on the expectation. Under this scenario, I expect the rally would be much more gradual and may find resistance around 0.74 in the short-to-medium term. The absence of further action in the coming months, though, could NZD trade around 0.77 as forward guidance wears off.
50 Bps Cut And Wait-And-See:
This could appease the markets for now and stem the rally in the short term. We could even see a small correction in this scenario — buy the rumour, sell the fact — and retest the 0.6950/0.7 support in the short-to-medium term. Again, though, the absence of further commitments or action before the end of the year could again see NZD on the rise.
50 Bps Cut And Firm Commitment To Further Easing:
This would likely get the best reaction in the NZD from the RBNZ’s perspective and could see it buck the recent trend against the USD. In this scenario, we could be headed back toward 0.6650 in the short-to-medium term. But again, in order for losses to be sustained or built upon, the RBNZ will need to follow through on its commitment — or markets will test them again.