NZDUSD ahead of the RBNZ announcement

The RBNZ is up tonight in later European hours (early Thursday for Oceania and Asia). The market has moved into a more neutral stance on the potential for RBNZ easing.

The recent spate of healthier risk appetite has seen extensive unwinding of the expectations for central bank easing – and the expectations for the RBNZ are no exception. Earlier this month, the market was look for in excess of 40 bps of easing to the RBNZ’s 2.50% cash target rate over the next 12 months, whereas today that figure is back to a more neutral -13 bps (according to a Credit Suisse measure of RBNZ expectations). A couple of New Zealand data points have been cause for concern of late, with the April NZ PMI coming in at a terrible 48.0 and representing a massive deceleration from the previous month’s 53.8. The unemployment rate was also a higher than expected 6.7% for Q1. Thus, there could be room for the expression of a bit more caution in the guidance from the RBNZ’s Bollard than the market is expecting as it trades NZD according to the whims of the latest swings in global risk appetite. (No expectations for any actual rate adjustment at this time).

Chart: NZDUSD
NZDUSD is hitting fresh four-week highs in its significant consolidation after the large sell-off after it broke the key 0.8100 area support back in early May. That is taking it to within shouting distance of the quickly descending 55-day moving average (red line). The pair needs a sharp reversal back through the 0.7750 area for bears to have a technical toehold on a near-term top formation. Note that the 0.382 Fibo of the move from the late February high comes in around 0.7840. All in all, it’s a structural bearish chart looking for near-term confirmation.

Chart: NZD vs. USD 2-year rate spread
The NZDUSD action of late generally reflects the directional move in NZ vs. US rate spreads, though note the general downward drift in the spread from many months back that suggests a higher potential for downside if the spread begins tightening again.