Analyst Pick: Bearish NZD/USD

NZD/USD Trade Highlights:

• The New Zealand Dollar has seen one risk event pass with the formal adoption of a dual mandate by the RBNZ
• This was probably quite well priced, as it had been well flagged
• However, it is likely to weigh on a NZD/USD pair already looking heavy

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My Pick: Short NZD/USD

Expertise: Macro and Technical

Timeframe: Several Weeks

The New Zealand Dollar saw some uncertainty lift Monday (March 26) with the Reserve Bank of New Zealand’s formal adoption of a duel monetary-policy mandate.

On government instruction the central bank will now have to consider not only its old inflation target when setting interest rates, but also the “maximum, sustainable” level of employment. This addition was proposed by the incoming government which was formed last year following considerable coalition horse trading when September’s election produced a hung parliament. Reports in the interim suggested that the RBNZ might have liked Auckland to stop short of making the mandate official, but the government has always held firm and said that whoever became the new RBNZ government would have to accept it. Well, now Adrian Orr is installed as that governor and has indeed accepted it.

What this may mean is that interest rates remain lower than they might otherwise have done as the second part of the mandate inclines the RBNZ to wait before raising interest rates to secure the first part. With NZ interest rates already at record lows, inflation docile and import levels below expectations, the dual mandate is likely to weigh on NZD/USD.

The pair is already looking a little week on its daily technical charts, having been in a steady, well respected downtrend since February.

This trend is likely to endure with a retest of the recent significant low likely over the next week or two. That low was March 1’s intraday nadir of 0.7157, which corresponds to the high of Jan 5 which now looks like key support.

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— Written by David Cottle, DailyFX Research

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