The kiwi rallied after the Reserve Bank today left the Official Cash Rate (OCR) unchanged at 1.75%. The RBNZ highlighted that the global economic growth has increased and become more broad-based. However, major challenges remain with on-going surplus capacity and extensive political uncertainty.
The Bank highlighted that house price inflation has moderated further, especially in Auckland. The slowdown in house price inflation partly reflects loan-to-value ratio restrictions, and tighter lending conditions. This moderation is projected to continue, although there is a risk of resurgence given the on-going imbalance between supply and demand. Regarding FX, they stated that a lower New Zealand dollar would help rebalance the growth outlook towards the tradables sector.
Price action on the NZD/USD daily chart highlights today’s rally was unable to take out the .7300 handle. Since the last leg higher after breaking above all three key SMA(s), price has respected the .7200 to .7300 range. If we eventually see weakness return, key support will come from the 200-day SMA, which trades at the .7094 level. Key resistance remains .7300 to .7350 zone.
The Trade: Buy NZD/USD at .7125 with a stop loss at .7058 and a take profit at .7325. The Risk/Reward Ratio is 1:3