17.09.201916:36 Forex Analysis & Reviews: NZD/USD. New Zealand dollar in anticipation of another surprise from RBNZ

The New Zealand dollar is showing a southern trend, gradually returning to its previous positions after a 2-week corrective growth. On September 12, the NZD/USD pair reached its price peak: unable to overcome the resistance level of 0.6450 (the average line of the Bollinger Bands indicator on the daily chart), the kiwi began to slowly but surely roll back to the area of multi-year lows.

Judging by the dynamics of the southern trend, the price is moving towards the level of 0.6250 (the lower line of the Bollinger Bands indicator on the same timeframe) – this target was too tough for bears at the time. In late August and early September, sellers tried several times to push this price outpost, but to no avail. The southern impulse was exhausted, and NZD/USD bulls took advantage of it. This week, the situation has changed again: rumors are actively circulating in the market that the Reserve Bank of New Zealand will reduce the interest rate again at its September meeting (to be held on the 25th). After an unexpected 50-point decline in July, traders are wary of possible initiatives of the regulator. And in this context, just one release can trigger strong volatility for the pair – especially if it turns out to be worse than the forecasts.

We are talking about data on GDP growth in New Zealand for the second quarter, the publication of which is expected during the Asian session on Thursday (September 19). In the first quarter of this year, the economy of the island nation showed a rather contradictory result. In quarterly terms, GDP grew by 0.6% (which coincided with the forecast), and in annual terms, the indicator grew to 2.5%. The structure of this indicator was also mixed. For example, the volume of services produced increased by only 0.2% – this is the weakest growth rate in the last 7 years. But the volume of production in the manufacturing industry, on the contrary, pleased with strong growth of up to 1.4%.

However, despite such contradictory results, the Central Bank of New Zealand not only eased the conditions of monetary policy but also resorted to "shock therapy", surprising the market with a 50-point decline. According to the head of the RBNZ, the global trade war has an extremely negative impact on consumer confidence, the investment climate, exports and actually paralyzes business activity in the country. In other words, the regulator decided to be proactive, anticipating the negative consequences of the trade conflict.

There are only two meetings of the New Zealand Central Bank before the end of the year. The first will take place next week, the last in November. More recently, most experts were inclined to believe that at one of these meetings, the regulator will reduce the interest rate by another 25 basis points, that is, to 0.75%. But after another escalation of the trade war, the market started talking about alternative scenarios – in particular, according to some analysts, the RBNZ will reduce the rate at each meeting this year, ending the year at around 0.50%. The Reserve Bank, in general, does not deny such intentions – judging by the rhetoric of Adrian Orr, the regulator is not going to stop there and is ready to soften monetary policy further, and not only this year. For example, after the August meeting, the head of the RBNZ said that the regulator may well have to deal with negative rates – in the event of a crisis, the regulator can reduce the key interest rate to -0.35%. This suggests that traders should be prepared for unexpected moves by the New Zealand regulator.

Given this fundamental background, New Zealand's GDP growth data for the second quarter could have a strong impact on the kiwi. Moreover, experts predict weak dynamics of economic growth. So, on a monthly basis, the figure should rise to only 0.4% (the worst result since the third quarter of 2018), and on an annual basis – to 2.1% (the worst result in the last 7 years). Even if the release is at the forecast level, this fact may put significant pressure on the New Zealand dollar. If the indicator is released in the "red zone", the price decrease can acquire an avalanche-like character. Indeed, in this case, the probability of unexpected decisions on the part of the RBNZ will largely increase. In the context of the NZD/USD pair, the price will continue its downward movement to the annual minimum – even with the weak positions of the US currency (if the results of the Fed meeting are not in favor of greenback).

From a technical point of view, NZD/USD also retains the potential for a bearish trend. On all "higher" timeframes, the pair is located between the middle and lower lines of the Bollinger Bands indicator and under all Ichimoku indicator lines. The support level (the target of the southern movement) is the lower line of the Bollinger Bands indicator on the monthly chart, which corresponds to the level of 0.6250.