Reserve Bank of New Zealand surprised markets with an unexpected 25 basis point rate cut today. While money markets and economists were expecting cash rate to be left unchanged at 5.50% for the ninth consecutive meeting, RBNZ decided to cut it to 25 basis points. As this was a big surprise, so was the market reaction, with NZD slumping around 1% against all other G10 currencies. RBNZ Governor Orr also said that he is now confident in inflation getting back to target range and that the Bank can begin process of normalizing rates. Money markets are now pricing in 29 basis points of easing at October meeting, as well as combined 67 basis points of easing over the next two meetings (October and November).
A key event in today's calendar for the later part of the day is release of US CPI inflation report for July. PPI data released yesterday turned out to be a dovish surprise, triggering USD weakening and a jump on Wall Street. Dovish PPI release also boosted hopes for a dovish CPI print today. This is a kind of risk as should today's data came in higher-than-expected, a strong hawkish reaction may occur. Nevertheless, such a reaction should be short-lived as markets are increasingly certain that Fed is now more focused on jobs market rather than inflation, and that easing cycle will begin in September anyway.
Taking a look at NZDUSD chart at D1 interval, we can see that the pair is taking a sharp turn lower today in response to an unexpected rate cut by Reserve Bank of New Zealand. While reason behind today's pullback is fundamental, the reversal occurred in an interesting technical spot as well. Pair jumped yesterday and tested 0.6080 area, where the 200-session moving average (purple line) and short-term downward trendline can be found. The pair pulled back below the 0.6040 support zone and the daily low was reach just slightly above psychological 0.6000 mark.
Source: xStation5
