- RBNZ is expected to hike 25bp but the surprise risk is to the downside in a strong US dollar environment.
- NZD/USD idles the 0.69 figure ahead of the event, just above the daily 200 smoothed MA.
The kiwi was on the back foot on Tuesday as the US dollar surges on risk-aversion which has weighed on the commodity complex.
At the time of writing, NZD/USD is trading at 0.6915 after falling from a high of 0.7029 to a low of 0.6899.
The bird is down some 1.43% after yesterday’s lockdown announcement as bulls cradle the 0.69 level ahead of the Reserve Bank of New Zealand.
”Today is all about the MPS, where the risk of the RBNZ standing pat has now clearly overtaken the risk of a 50bp hike (which some argued for up until yesterday),” analysts at ANZ Bank said.
”On balance, we still expect a 25bp hike, and for fiscal policy to do the heavy lifting.”
”As things stand the market is now about 80/20 in favour of a 25bp hike; as such a pause would cause a bigger reaction.”
NZD/USD technical analysis
The risks are that the Reserve Bank of New Zealand does not hike rates, exposing the currency to the same type of central bank divergence trade-off that the Aussie dollar faced on Tuesday following the dovish RBA minutes.
Considering the positing of where the currency is sat on the daily charts, leaning on the smoothed daily 200 moving average, a break of 0.6880 could lead to a significant move to the downside to test 0.6800/10 and 0.6720 below there for a longer-term target area.
The weekly bearish head and shoulders add additional bearish conviction.
In the above weekly chart, the head and shoulders are marked and so too are the key support zones.
The US dollar has also been compared and the negative correlation speaks volumes when taking into consideration of the bullish environment the US dollar is embarking on, as highlighted in the following analysis:
If the kiwi is stripped of a hawkish bias at the RBNZ that it has enjoyed for many weeks, then the path of least resistance is to the downside.
On the upside, the weekly low of 0.6968 will be of interest near a 50% mean reversion of the daily spike to the downside:
Read More: NZD/USD traders are braced for volatility over RBNZ uncertainty