NZD : Negative Rate Policy
(Thu, 15 Oct 2020). NZD/USD tags a fresh monthly high (0.6682) even though the Reserve Bank of New Zealand (RBNZ) defends its dovish forward guidance, and the exchange rate may continue to retrace the decline from the yearly high (0.6798) as the Relative Strength Index (RSI) breaks out of the downward trend established in September.
NZD/USD RATE EYES 2020 HIGH EVEN AS RBNZ DEFENDS NEGATIVE RATE POLICY
NZD/USD appears to be unfazed by a slew of dovish comments from RBNZ Assistant Governor Christian Hawkesby as key market trends largely remain in place, and the inverse relationship between the US Dollar and investor confidence may continue to influence the exchange rate as the Federal Reserve’s balance sheet approaches the peak from June.
However, the RBNZ appears to be on track to further support the New Zealand economy as Assistant Governor Hawkesby reiterates that the central bank is in “active preparation of a package of further tools,” with the official going onto say that “the biggest challenge about having a negative policy rate is the communication challenge” while speaking at a conference hosted by Citigroup.
Hawkesby goes onto say that the RBNZ’s willingness to implement a negative interest rate policy (NIRP) is “not a game of bluff,” and the comments suggest the central bank will deploy more unconventional tools to generate a stronger recovery as “there is a transition that’s ahead of us that we can see, and one that’s going to require continued policy support.”
It remains to be seen if the RBNZ will deliver another round of monetary stimulus at its last interest rate decision for 2020 as “the banking system is on track to be operationally prepared for negative interest rates by year end,” and Governor Adrian Orrand Co. may stick to the same script at the November 11 meeting as the central bank looks poised to keep the Large Scale Asset Purchase (LSAP) Programme at NZ$100 billion.
Until then, swings in risk appetite may sway NZD/USD as the US Dollar reflects an inverse relationship with investor confidence, and key market trends may carry into the end of the month as the tilt in retail sentiment resurfaces in October.
TECHNICAL PERSPECTIVES
The decline in net-short position could be a function of stop-loss orders getting triggered as NZD/USD tags a fresh monthly high (0.6682), while the jump in net-long position has helped to alleviate the tilt in retail sentiment as only 35.14% of traders were long the pair earlier this week.
With that said, the pullback from the yearly high (0.6798) may turn out to be an exhaustion in the bullish trend rather than a change in NZD/USD behavior as the crowding behavior from earlier this year resurfaces, with the Relative Strength Index (RSI) highlighting a similar dynamic as it breaks out of the downward trend carried over from September.
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