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Trading NZD Ahead of RBNZ
The New Zealand dollar is trading strongly ahead of the Reserve Bank’s monetary policy announcement and the question tomorrow will be whether the economy deteriorated enough to warrant three back-to-back rate cuts. Every one of the 17 economists surveyed by Bloomberg expect a 25bp rate cut but at the last meeting, the central bank dropped its reference to NZD being at an unjustified level which suggested they could keep rates steady in September. While there have been widespread problems in China, taking a look at the second table below, consumer spending, job ads and the housing market saw improvements since the last meeting. Dairy prices also increased at the last 2 auctions leaving the Global Dairy Trade index at a higher level in September compared to July. For these reasons, we believe that another rate cut is not a done deal and if we are right, the New Zealand dollar will spike higher.
Technically, NZD/USD still remains in a downtrend with near term resistance at the September highs right above 64 cents. If this level is broken, there’s no major resistance until 65 cents. On the downside, the August 24th spike low at 62 cents is support.