NZD/USD Price Analysis: Revisits monthly low near 0.6100

08 Oct 2024, 13:30 by Sagar Dua · FXStreet

NZD/USD falls to a monthly low near 0.6100 as traders brace for the RBNZ’s policy decision.
The RBNZ is expected to reduce its OCR further by 50 bps to 4.75%.
Investors await the US inflation data for fresh guidance on the Fed’s interest rate outlook.

The NZD/USD pair hits the monthly low near the round-level support of 0.6100 in Tuesday’s North American session. The Kiwi pair weakens as the New Zealand Dollar (NZD) is under pressure ahead of the Reserve Bank of New Zealand’s (RBNZ) policy decision, which will be announced on Wednesday.

The RBNZ is expected to cut its Official Cash Rate (OCR) by a larger-than-usual size of 50 basis points (bps) to 4.75% as the central bank is focused on reviving economic growth. The board also reduced its borrowing rates unexpectedly by 25 bps in August.

Meanwhile, weakness in Chinese markets due to the unavailability of specific details for allocation of funds in the stimulus package of 200 billion yuan unveiled by Chairman of the National Development and Reform Commission (NDRC) Zheng Shanjie on Tuesday after the long National Day holiday has failed to prompt recovery in the Kiwi dollar.

On the United States (US) front, the US Dollar (USD) struggles to extend its upside, with investors focusing on the Consumer Price Index (CPI) data for September, which will be announced on Thursday. The inflation data will influence market expectations for the Federal Reserve’s (Fed) interest rate outlook for the remaining year. The core CPI – which excludes volatile food and energy prices – is estimated to have grown steadily by 3.2%.

NZD/USD extends its losing streak for the sixth trading session on Tuesday. The Kiwi pair has discovered temporary support near the 200-day Exponential Moving Average (EMA) around 0.6100.

The 14-day Relative Strength Index (RSI) has declined to near 40.00. A bearish momentum would trigger if the oscillator slips below the above-mentioned level.

More downside would appear if the pair breaks below the horizontal support plotted from September 11 low around 0.6100. The asset would decline further towards May 3 high of 0.6046 and the psychological support of 0.6000 if it breaks below September 11 low.

On the flip side, a reversal move above the 20-day EMA at 0.6230 will drive the asset towards September 3 high of 0.6302 and September 30 high near 0.6380.

NZD/USD daily chart

Economic Indicator

RBNZ Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) announces its interest rate decision after its seven scheduled annual policy meetings. If the RBNZ is hawkish and sees inflationary pressures rising, it raises the Official Cash Rate (OCR) to bring inflation down. This is positive for the New Zealand Dollar (NZD) since higher interest rates attract more capital inflows. Likewise, if it reaches the view that inflation is too low it lowers the OCR, which tends to weaken NZD.

Why it matters to traders?

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by Governor Adrian Orr’s press conference.

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