NZD/USD recovers a major part of the post-RBNZ slump to 7-month lows

   “¢   RBNZ cuts rates to historic low and prompts some aggressive selling.
   “¢   Renewed US-China trade tensions added to intense bearish pressure.
   “¢   A modest USD pullback helped recover the lost ground to yearly lows.

The NZD/USD pair has managed to recover a major part of its post-RBNZ slump to seven-month lows and is currently placed at the top end of its daily trading range, just below the 0.6600 handle.

The pair came under some intense selling pressure on Wednesday and added to this week’s bearish gap opening/the overnight modest downtick after the Reserve Bank of New Zealand (RBNZ) lowered the official cash rate (OCR) to a fresh record low level of 1.5%. The central bank also hinted of one more rate cut this year, dragging the benchmark 10-year government bond yield to its lowest level since April 1 and negatively affected the New-Zealand Dollar.  

Adding to this, the prevalent risk-off environment, led by renewed fears about a full-blown US-China trade war, further drove flows away from perceived riskier currencies – like the Kiwi. Regarding the US-China trade tensions, it is worth reporting that the US Trade Representative Robert Lighthizer confirmed on Tuesday that the US will increase tariffs on $200 billion worth of Chinese goods on Friday.  

The pair tumbled to an intraday low level of 0.6526 – the lowest since Nov. 1, albeit managed to find some support at lower levels amid initial signs of stability in the financial markets – as depicted by a positive opening in the European equity markets. This coupled with a modest US Dollar pullback extended some additional support and contributed to the pair’s rebound of around 70-75 pips from daily lows.

It, however, remains to be seen if the recovery is backed by any genuine buying or is solely led by some short-covering as investors still await fresh updates from the next round of trade negotiations between the world’s two largest economies. There aren’t any major market moving US economic releases due on Wednesday and hence, the incoming trade-related headlines might play a key role in producing some meaningful trading opportunities.

Technical levels to watch