- RBNZ’s move to cut interest rates by 50bps triggered a sharp leg down on Wednesday.
- Oversold conditions prompted some short-covering move amid improving risk sentiment.
- A modest USD uptick is likely to keep a lid on any strong recovery ahead of Fedspeak.
The NZD/USD pair trimmed a part of its early steep decline and has now recovered over 50-pips from the post-RBNZ slump to 3-1/2 year lows.
The pair extended its recent sharp rejection slide from the 0.6800 neighbourhood, or three-month tops set on July 19, and continued losing ground for the tenth consecutive session on Wednesday – also marking its 13th day of downfall in the previous 14.
The selling pressure aggravated further following the Reserve Bank of New Zealand’s (RBNZ) surprise decision to lower its benchmark interest rates by 50 bps as compared to market expectations for a 25bps rate cut. Adding to the aggressive move, the RBNZ clearly indicated that the stand ready for further easing in the near future and aren’t afraid to pursue negative rates.
The pair tumbled around 180-pips intraday, sliding farther below the 0.6400 handle to the lowest level since January 2016 in the reaction of the RBNZ’s dovish outlook, albeit some renewed US Dollar weakness – led by a fresh leg of a free-fall in the US Treasury bond yields, provided some immediate respite.
This coupled with a slight improvement in the global risk sentiment – as depicted by a positive trading mood around equity markets, extended some additional support to perceived riskier currencies – like the Kiwi, and further collaborated to the pair’s intraday short-covering move amid extremely oversold conditions.
It, however, remains to be seen if the pair is able to capitalize on the attempted recovery or meets with some fresh supply at higher levels amid a modest pickup in the greenback demand and growing concerns about a full-blown trade war between the world’s two largest economies.
In absence of any major market-moving economic releases from the US, a scheduled speech by Chicago Fed President Charles Evans might influence the USD price dynamics and produce some short-term trading opportunities later during the early North-American session.
Technical levels to watch
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