The NZD/USD exchange rate continued its strong downtrend and moved below a crucial support level as the market reacted to the ongoing trade war between the United States and China and after the latest Reserve Bank of New Zealand (RBNZ) decision. It plunged to a low of 0.5488, its lowest point since March 2020.
RBNZ interest rate cut
The RBNZ delivered another interest rate cut as analysts expected. It slashed rates by 0.25%, bringing the benchmark rate to 3.50%. It was the fifth consecutive rate cuts by the central bank.
In a statement, the bank noted that the reduction of interest rates was appropriate because inflation was at its target and the economic outlook worsened.
The bank noted that the lower kiwi had helped to support the economy but warned that household spending and residential investment were weak.
At the same time, the bank noted that the ongoing trade tensions had serious implications on the economy as foreign demand falls. That’s because Trump enacted a 10% tariff on all goods coming from the country.
However, the bank said that the ongoing trade diversification and lower oil prices may help to offset any economic weakness. The bank did not mention the currency aspect, but the falling NZD exchange rate will likely offset the impact of tariffs. Its statement said:
“The Committee agreed that a 25 basis point reduction in the OCR would be consistent with their mandate of maintaining low and stable inflation. As the extent and effect of tariff policies become clearer, the Committee has scope to lower the OCR further as appropriate.”
Read more: China digs in, vows to ‘fight to the end’ if US imposes new tariffs, escalating trade war
FOMC minutes and US inflation data
The next key catalyst for the NZD/USD exchange rate will be the upcoming Federal Reserve minutes on Wednesday and US inflation data on Thursday.
These minutes will provide more details on what the FOMC committee deliberated in the last meeting. In it, officials left interest rates unchanged and hinted that they will hold them steady for a while.
The US will then publish the latest inflation data on Thursday. Economists expect the data to show that the headline CPI dropped to 2.6% from 2.8%, while the core figure retreated from 3.1% to 3.0%
The FOMC minutes and the US inflation data, while important, will not have a major impact in the financial market since a lot has changed. With the US tariffs now in place, analysts now expect that US inflation will tick up in the next few months. Some analysts expect that Fed may opt to cut interest rates soon.
NZD/USD technical analysis
NZD/USD chart by TradingView
The monthly chart shows that our recent NZDUSD forecast was accurate. It plunged to a low of 0.5488, its lowest level since 2020. It is also hanging on a thread since, after that there is no important support level nearby.
The next key support level is at 0.4895, the lowest level in 2009 during the Global Financial Crisis. A drop to that level would signal a 11% crash. Before getting to that support level, the pair will likely crash to the psychological point at 0.50.
There are odds that this crash will happen since the pair has formed a giant descending triangle pattern. It also remains below all moving averages, a sign that bears are in control.
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