NZD/USD Eyes on 0.6550 Amid Negative Rates Suggestion

The Reserve Bank of New Zealand’s Chief Economist took a strident tone on Thursday – and even hinted again at the potential for negative interest rates. Yuong Ha said that the central bank ought to be acting fast to tackle the economic fallout of the coronavirus pandemic, and that it was worth acting quickly – and also acting in a substantial way. Negative interest rates are controversial, not least to foreign exchange traders. He also repeated a previous line from the Bank that negative interest rates were under consideration. He gave some details of this, including a potential plan to introduce “tiered” rates. They are seen as an extreme example of a stimulus tool, and – if implemented – could make debt even more attractive due to its cheapness. They are, however, rarely used by major central banks.

Further indication from the Kiwi central bank that they could be used in some sort of tiered way, then, continues to hold trader interest. The announcement had a mixed effect on the New Zealand dollar. Overall, this announcement is likely to limit the capacity of the Kiwi dollar to surge significantly. However, a global trend towards pro-risk currencies such as the Kiwi dollar meant that losses were also limited. According to analysts, the next key level for the Kiwi dollar to contend with is the 0.6550 point. This is the next support level, though from there the currency may have to start contending with the psychologically important point of 0.6500.

Away from price chart action, it is worth also briefly considering what might lie ahead on the economic calendar in the coming days. Sunday evening this week will see a visitor arrivals figure for August released at 9:45pm GMT. These figures are extremely low generally due to the coronavirus pandemic, which has seen border restrictions in New Zealand and across the world. Given the importance of tourism to the Kiwi economy, however, it is likely that this metric will still be watched closely. The figures will be year on year, and are expected to show a change of -114.9%. This compares to the previous change of -98.5%.

On Monday of next week, meanwhile, there will be a house price index release out at 8pm GMT. This release will cover September, and is due to show month-on-month changes. It was last recorded at 1.9%, but there is no consensus as to where it will go next. The stratified index data will come from the Real Estate Institute of New Zealand (REINZ). It will be followed at 9:45pm GMT by a food price index for August. This is expected to show a month-on-month change from 0.7% to 0%. In the same time slot, there will be an electronic card sales release covering spending in the retail sector, again focusing on September. This is due to show a year-on-year change from -0.8% to +0.5%.

Nigel Frith

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