The RBNZ deliver another 50bp cut, AUD/NZD eyes breakout

View related analysis:

Summary of the RBNZ statement and minutes

The RBNZ cut their cash rate by 50bp to 3.75%
If economic conditions continue to evolve as projected, the committee has scope to lower the OCR further through 2025
Economic outlook remains consistent with inflation remaining in the 1-3% target band over the medium term
Economic activity in New Zealand remains subdued
Price and wage setting adapting to low-inflation environment
Lower import prices contributing to lower CPI
NZ CPI expected to be volatile over the near term due to lower exchange rate and petrol prices
The net effect of future changes in trade policy on inflation in New Zealand is currently unclear.

Their minutes say that trade restrictions are likely to weigh on domestic economic activity, and that there is already ore spare capacity in the economy than they had assumed in November. And while lower interest rates are expected to underpin domestic economic activity to a degree, the speed and timing of future cuts remains uncertain.

The RBNZ own cash rate projection has been lowered to a quarterly average of 3.45% by June, down from 3.83% in the November meeting. Which is a -38bp reduction compared with their November projection, or one and a half 25bp cuts.

Yet as there is no meeting in June, that only leaves April 28 and May 28 for them to spread these supposed 38bp of easing. And that begs the question as to whether we’ll see a 25bp in April and leave incoming data to decide whether to hold at 3.5% or go for another 25bp cut to 3.25% in April.

The RBNZ’s cash rate is now 35bp above the RBA’s, which is its widest in nearly 12 years. And this could be supportive for an eventual breakout on AUD/NZD, once the obligatory bull-trap which tends to plague forex markets plays out.

AUD/NZD technical analysis

The less-dovish-than expected RBA cut yesterday has positioned AUD/NZD bulls well for today’s dovish 50bp cut. Even if the RBNZ were also not as dovish as assumed. AUD/NZD trades pips away from its 2024 high, a level it seems more likely to break than note.

Currently up 0.94% over the past two days, it is enjoying its best 2-day run since August. But as always, I am suspicious of a clean first break, as rarely do prices break and continue higher in forex land.

The weekly chart shows that sharp reversals have occurred around similar levels twice before sine June. Regardless, widening interest rate differentials remain favourable for an eventual breakout on AUD/NZD and for 1.12 and 1.250. However, there does come a point where the New Zealand dollar becomes too weak for the RBNZ’s liking as it simply pushes import costs (and therefore inflation) too high.

For now, the bias remains bullish while prices remain above 1.10 and for an eventual break to see prices reach for 1.12, or even 1.1250 before a larger correction.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Full Disclosures and Risk Warning. Increased leverage increases risk.

GAIN Capital Group LLC (dba FOREX.com) 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA. GAIN Capital Group LLC is a wholly-owned subsidiary of StoneX Group Inc.