NZD/USD consolidates below 0.7000 as bulls recover before another run at multi-year highs

• NZD/USD is consolidating not too far from the 0.7000 level, as prices set the stage for another potential run at multi-year highs.
• News that the NZ government is mulling adding house price inflation to the RBNZ’s remit was a tailwind for NZD on Tuesday.
• RBNZ Governor Orr will be speaking soon and could speak on the topic.

NZD/USD has mostly gone sideways over the last few hours, with the price action mostly contained between roughly the 0.6966-0.6980 levels. Though off the multi-year highs set earlier on Tuesday, the pair still trades with impressive gains on the day of more than 50 pips or around 0.8%.

Attention turns to RBNZ Governor Orr

News regarding the RBNZ and New Zealand government has been a tailwind for NZD today; during the Tuesday Asia session, the New Zealand Finance Minister floated the idea of expanding the RBNZ’s inflation remit to include house price inflation in order to temper an increasingly hot housing market (one of the current Labour government’s key aims).

Given that house price inflation has been much higher than say Consumer Price Inflation over the last few years, and RBNZ targeting 2% annual inflation which includes house price growth would be much less dovish (hence why NZD strengthened).

The government said they are seeking advice on this, and the Finance Minister sent a letter to RBNZ Governor Orr regarding the topic. Though a formal reply is not expected before the year-end, RBNZ Governor Orr already (kind of) responded; Orr said that while he welcomes the opportunity to contribute to improving housing affordability and will consider any suggestion of how the monetary policy committee could take into account house prices, monetary and fiscal policy cannot fix housing issues and that the RBNZ already gives consideration to house prices.

The RBNZ Governor has another chance to speak on the topic at 22:00GMT when he comments on the just-released semi-annual Financial Stability Review. The review said that the economy is relatively resilient and the financial system has not been tested as severely as it could have been. However, the review said that high leverage in the housing sector poses a risk if either house prices drop or unemployment rises. Thus, the RBNZ intends to resume loan-to-value ratio (LVR) restrictions in early 2021 (this ensures that banks only lend to home buyers who pay a certain percentage deposit).

NZD/USD setting the stage for move to 0.7050

With prices looking likely to close above the December 2018 high at 0.6969, it looks like NZD/USD is setting the stage for a move higher towards the next significant area of resistance at around 0.7050 (the July 2018 highs).

However, if the NZD bulls fail, or the USD bulls see a significant pickup, then we could see the pair test support in the form of Tuesday’s lows 0.6446, then Monday’s lows around 0.6900.

NZD/USD weekly chart