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OCR Remains Accommodative

The New Zealand dollar dropped again after the Reserve Bank of New Zealand decided to keep the rates on hold. Ahead of the release of the official cash rates, the kiwi managed to attract the interest of the investors, however, the decision to leave it at 1.75 percent put back the currency on its previous range.

Based on the statement of Reserve Bank Governor Graeme Wheeler, there were positive macroeconomic indicators in advanced economies over the last two-months, however, the current surplus capacity in the global economy and extensive geopolitical uncertainty served as major hindrance.

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Although the quarterly GDP dropped in the December quarter, the general outlook remains positive with the strong population growth, high levels of household spending and construction activity and accommodative monetary policy.

Governor Wheeler noted that further depreciation is needed to achieve more balanced growth as  the trade-weighted exchange rate has declined 4 percent since February due to weaker dairy prices and reduced interest rate differentials. The dairy prices remain to be volatile in the recent auctions and skepticism will likely stay around future outcomes.

New Zealand is expected to report its trade balance on Friday. Should the figures turn positive, it can provide a momentary uptrend for the currency. In January, the trade gap of New Zealand stood at NZD 285 million, higher than the NZD 12 million trade deficit in the same month in 2016. The biggest trade balance was spurred by an 8 percent rally of imports on a yearly basis and a 0.3 percent increase of exports.

NZD/USD Movement

As seen in the chart below, the surge of trade deficit provided a temporary boost in the NZD/USD pair last February. The pair was lifted from 0.71833 and reached 0.72235 on the dot. On the other hand, the pair was likely in the recovery stage in a wider perspective. The NZD/USD suffered from the widely expected Fed rate hike in March. Nonetheless, the mixed outlook after the adjustment in the US monetary policy weakened the greenback; thus, the kiwi started to recuperate.

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At the time of writing, NZD/USD closed at 0.70403 after opening at 0.70454. During the overnight session on Tuesday, the pair settled at 0.70408, close enough with the current trading range. Although the numbers were tight, the pair would unlikely be bearish ahead of the upcoming trade gap result. NZD/USD was trading above its 50-day SMA of 0.69554 and touched its 20-day SMA of 0.70418, supporting the anticipated uptrend of the pair. Given the on-going movement of the pair after the economic reports, NZD/USD may consolidate at 0.70500 at the end of today’s session.

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