By The New Zealand dollar rose slightly after the latest RBNZ interest rate decision. The AUD/NZD exchange rate dropped for three consecutive days, reaching a low of 1.1013, its lowest level since November 18, and 1.5% below the highest level this year. Meanwhile, the NZD/USD pair rose slightly to 0.5857, up from this week’s low of 0.5795.
RBNZ jumbo rate cut
The NZD/USD and AUD/NZD pairs were reacting to the decision by the RBNZ to cut rates by 0.50%, to 4.25%. It was its third interest rate cut of the year and was in line with what analysts were expecting. It has now slashed rates by 125 basis points, bigger than the Fed’s 75.
The bank also hinted that it will deliver another big cut earlier this year to support the economy, which is showing signs of stress. Most notably, the bank signaled that its neutral rate will be 3.85%, which it hopes to get mid-next year.
In its statement, the bank justified the jumbo rate cuts to the fact that the economy remains subdued and that inflation is nearing its target level. Data released recently showed that New Zealand’s headline Consumer Price Index (CPI) has dropped to 2.2% from the 2022 high of 7.7%. This trend may continue in the coming months as the economy remains under pressure.
The RBNZ’s decision is different from that of the Reserve Bank of Australia (RBA), which has maintained a fairly hawkish tone. It is the only major central bank that has not slashed interest rates this year.
Economists expect that the RBA will start cutting rates earlier this year since inflation is falling. Data released on Wednesday showed that the monthly CPI indicator dropped to 2.10% in October, lower than the median estimate of 2.30%.
Meanwhile, in the United States, the Federal Reserve signaled that it will be gradual when it comes to cutting interest rates going forward. Minutes of the last meeting revealed that officials were concerned about cutting rates too fast and its impact on inflation.
Further, there are now rising concerns about Donald Trump’s plan to add tariffs on goods from most countries. Such a plan, coupled with mass deportations, will lead to substantial inflation in the coming months.
NZD/USD technical analysis
NZD/USD chart by TradingView
The daily chart shows that the NZD to USD exchange rate has been in a strong downward trend in the past few months. It has dropped from the year-to-date high of 0.6378 in September last year to a low of 0.5796.
It bounced back to 0.5850, moving slightly above the key support level at 0.5850, its lowest swing in April and August this year. The pair has remained below the 50-day and 100-day Exponential Moving Averages (EMA).
Notably, it has formed a morning star candlestick pattern. Therefore, the pair will likely continue rising ahead of the upcoming US GDP, PCE, durable goods, and initial jobless claims data. If this happens, it may rise to 0.5900 in the next few days.
AUD/NZD analysis
AUD/NZD chart by TradingView
The daily chart shows that the AUD/NZD exchange rate has suffered a harsh reversal in the past few days. It has dropped from the year-to-date high of 1.1181 to a low of 1.1013 on Wednesday.
The pair fell slightly below the key support at 1.1037, the 23.6% Fibonacci Retracement level. Most importantly, the AUD/NZD pair has formed a double-top chart pattern, pointing to further downside in the coming days. If this happens, the next point to watch will be at 1.0950, the 38.2% retracement level.
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