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With a Reserve Bank of New Zealand meeting scheduled for tomorrow, the New Zealand dollar is in play. The RBNZ is not expected to change interest rates but they will be preparing the markets for a rate hike in very near future. Since the last monetary policy meeting, there have been more improvements than deterioration in New Zealand’s economy. Inflation is on the rise, along with manufacturing activity, business confidence and housing. The drop in consumer confidence, job advertisements and service sector activity has been nominal and even though the Chinese and Australian economies have weakened, New Zealand remains buoyant. We expect hawkish comments from the central bank that should drive NZD higher and are watching the currency’s pair’s movement against the CAD. There’s a significant contrast between the outlook for Canada and New Zealand. When they last met, Bank of Canada Governor Poloz said he preferred to see a weaker currency. Low inflation and weak growth in Canada means the BoC could consider lowering rates if the economy weakens further. Hawkish comments from the RBNZ could drive NZD/CAD to record highs.
Taking a look at the daily chart of NZD/CAD, the currency pair is closing in on a year to date high. Above 0.9284, there is no major resistance in NZD/CAD until its record high of 0.9383. Support is at the big round number of 90 cents. If this level is broken, NZD/CAD could fall as low as 87 cents.