August 19, 2021

Longer-term Consolidation Break in NZD/USD?

 The Reserve Bank of New Zealand “surprised” traders today by holding off on an highly anticipated rate hike, due to fresh lockdown protocols imposed on New Zealand.

Will this be the catalyst for NZD/USD to break out of its range?

Longer-term Consolidation Break in NZD/USD?

The big risk event of the week for forex traders has come and gone, and that’s the latest monetary policy decision from the Reserve Bank of New Zealand.

Expectations earlier in August were that they would hike the official cash rate to 0.50% from 0.25%, but today was a different story as the RBNZ held off on any policy changes due to the New Zealand government’s unexpected action this week to lockdown the country to combat the covid-19 pandemic.

This scenario was anticipated by some traders as a possibility after the lockdown was announced, and it looks like the Kiwi reacted as expected by falling against the majors even further, breaking the lows of Tuesday’s lockdown announcement induced dip.

Even with the RBNZ being optimistic in their statement that they will hike some time in 2021, it’s unclear whether that will be the case or not as covid-19 cases continue to be on the upswing in many parts of the world.

Continued pressure from the pandemic lowers the odds considerably of continued economic recovery, and even raises the odds of global growth giving back some of the positive gains we’ve seen in 2021.

Until the covid-19 stabilizes once again, we think the odds will start to favor “safe havens”, making the move in NZD/USD below the strong support area around the 0.6900 major psychological level a potentially legit breakout.

And if today and tomorrow’s daily candles close below 0.6900, that could be the price action signal that draws in technical players to sell, as well as fundamental traders looking to de-risk if pandemic conditions do not improve.

Outside of the covid-19 pandemic, the next major catalyst to watch out for in NZD/USD is the upcoming Jackson Hole Symposium at the end of August, where the world’s central bankers will meet and discuss the global economy and monetary policy.

Expectations are that we won’t get any surprises of imminent policy changes at the event, but given that the Who’s Who of the financial world will be speaking, it’s always an event to watch and to stay frosty around.