Downward Slope of the Angle Supports the Rebound Outlook

Summary:

The Reserve Bank of New Zealand's (RBNZ) decision to lower interest rates by 50 basis points was in line with expectations; however, the anticipated easing trajectory disappointed dovish expectations. The NZDUSD briefly rose over 50 points, yet the technical outlook remains bleak.

BUY NZDUSD

Close Time

CLOSED

0.58933

Entry Price

0.62090

0.57400

0.57051 +0.00214 +0.38%

114.7

Pips

Loss

0.57400

0.57786

Exit Price

0.58933

Entry Price

0.62090

Fundamentals

The RBNZ has reduced the official cash rate by 50 basis points to 4.25%, a decrease that aligns with widespread market expectations. The RBNZ maintains an accommodative stance and indicated that if economic conditions meet projections, "the committee anticipates being able to further lower the official cash rate early next year."

Governor Adrian Orr did not rule out the possibility of a significant rate cut in February during the post-meeting press conference. However, the RBNZ now forecasts that by the end of 2024, the cash rate will decline to approximately 3.5%, suggesting that the RBNZ will implement smaller rate cuts or pause reductions to assess the impact of previous accommodative policies.

In terms of economic outlook, the RBNZ expects a contraction of 0.2% in the economy during the third quarter of 2024, followed by a recovery to a growth of 0.3% in the fourth quarter. It is anticipated that economic growth will stabilize at a quarterly rate of 0.6% in 2025 and 2026. The RBNZ noted, "Economic growth is expected to recover in 2025 as lower interest rates will encourage investment and other expenditures."

The projected inflation rate is expected to ease from the current 2.2% to 2% by early 2025; however, the RBNZ anticipates that inflation will rise again, stabilizing between 2.0% and 2.5% by early 2027.

Following the announcement of the RBNZ's interest rate decision, the New Zealand dollar experienced a significant surge, with the NZDUSD climbing over 50 points at one point. However, after comments from Governor Orr regarding the interest rate outlook, the New Zealand dollar retraced some of its earlier gains.

MARKET WATCH: We maintain our forecast for the official cash rate of the RBNZ, continuing to expect a reduction of 25 basis points in February, April, and May of next year, bringing the rate down to 3.5%. As always, the pace and extent of policy easing will be highly dependent on data, particularly given the lengthy interval until the next meeting.

In light of Governor Orr's remarks, the likelihood of a 50 basis point cut in February has increased; however, the data from now until then will be crucial, and there are clear indications of broad-based growth in economic activity, starting from a very weak baseline.

Downward Slope of the Angle Supports the Rebound Outlook_1

Technical Analysis

After the RBNZ reduced interest rates by 50 basis points, the NZDUSD experienced a brief decline but quickly regained its footing, rising back above 0.5800. However, the short-term outlook remains pessimistic, as the NZDUSD has not surpassed previous highs during its rebound from earlier declines, which heightens the risk of further downturns.

However, the Relative Strength Index and Stochastic Oscillator are approaching oversold levels. Additionally, the downward slope observed since October 2023 suggests that the market may be poised for a significant rebound.

Initially, a break above the previous high of 0.5924 will serve as an early signal for a rebound, as well as an indication of a potential halt in the downtrend. Following this level, bulls will aim to test the last round of selling pressure at 0.6009, and subsequently at 0.6057, with further gains potentially challenging the first round of selling resistance at 0.6209.

On the other hand, a drop below 0.5797 would invalidate this perspective.

Overall, while the NZDUSD remains in a bearish trend, it is currently situated within a rebound range that has been maintained since the beginning of 2023. We believe that history is likely to repeat itself.

Trading Recommendations

Trading Direction: Buy

Entry Price: 0.5855

Target Price: 0.6209

Stop Loss: 0.5740

Valid until: December 12, 2024 23:55:00

Support: 0.5867, 0.5797, 0.5774

Resistance: 0.5924, 0.6009, 0.6037

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