New Zealand's central bank lowered interest rates today. This is certainly bearish for NZD. The currency pair is going to follow the bearish bias in the long term.
The Reserve Bnak of New Zealand cut the cash rate rates from 1.75% to 1.50% today after it had been kept unchanged for 2.5 years. According to RBNZ, the rate cut was appropriate to supporting the cooling economy and cushion the domestic economy from global uncertainties. The rate cut immediately pushed NZD lower which is going to extend weakness. The Board stated that global economic growth had slowed down since 2018 which eased the demand for New Zealand's goods and services. Analysts expect the RBNZ to keep rates steady at 1.50% in the medium term. Policymakers are also concerned about an easing pace of inflation.
Softer global economic conditions contributed to the bank's recent shift to the dovish tone. Given employment and inflation outlook, a lower OCR now is most consistent with achieving their objectives and provides a more balanced outlook for interest rates
On the USD side, recently FOMC members Quarles and Clarida spoke about the interest rate situation in the US. They stated that the Federal Reserve does not see a good case for raising or lowering interest rates and its current policy stance could help inflation move toward the central bank's 2 percent target. The Fed held interest rates steady last week and policymakers stressed that the central bank would be patient in making any changes to policy.
On the US-China trade war story, things are getting a bit worse than expected. President Donald Trump threatened to raise tariffs on Chinese imports on the grounds that such measures help the US economy and are mostly paid by China. But on the flip side, such protectionism is going to harm the economy to a larger extent. Trump's administration plans to more than double duties on Chinese imports worth $200 billion. US top officials said that China had given up its commitments having agreed earlier during the trade talks.
To sum up, NZD is expected to lose further ground against USD as the rate cut aroused bearish market sentiment. US CPI reports are due on Friday, though they are expected to be neutral. Until then, the pair is going to trade with higher volatility. NZD is unlikely is gain momentum.
Now let us look at the technical view. The price recently relaxed the impulsive bearish pressure which occurred immediately after the rate cut decision today. This move indicates price corrections and a pullback towards the dynamic level of 20 EMA before proceeding further with the bearish trend with a target towards the support area of 0.6500. As the price remains below 0.6700 area, the impulsive bearish pressure is expected to continue.
