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NZD/USD: expected interest rate cut _10/08/2016

PCM Brokers

Technical analysis and trading recommendations - https://fxpcm.com/en/fx/nzdusd-expected-interest-rate-cut-10082016

Today at 21:00 (GMT) will be published the decision of the RBNZ interest rate in New Zealand. The probability of a rate cut is estimated at about 97%. Now the RBNZ interest rate is 2.25%. The last time the central bank cut rates in March.

In the present report, in late July, the RBNZ stated that continued for a long time, low inflation and a high rate of New Zealand currency, increasing pressure on the milk and the processing industry, is a negative factor for the development of the national economy. According to the head of the RBNZ Graham Wheeler, "will require a further easing of monetary policy to ensure that the average inflation rate in the region of the middle of the target range", this is 1% -3%.

In New Zealand Bureau of Statistics last week published an index of wages and the quarterly survey on employment. The data showed a moderate growth of wages and employment in the 2nd quarter. Inflation expectations in the 3rd quarter, according to a report RBNZ amounted to 1.7% (versus 1.6% in the previous quarter), indicating that inflation expectations in New Zealand remain low.

Economists also assume further rate cuts in New Zealand to 1.5%.

According to market participants, the expected rate cut by 25 bps already incorporated in the New Zealand dollar and the quotes will not cause a strong currency declines. However, the RBNZ may surprise markets if the rate will be reduced by 0.5%. Then the pair NZD / USD will fall sharply. Also, much of the future dynamics of the New Zealand currency will be associated with further comments after the decision of the RBNZ.

On the other hand, came out on the positive data on the US labor market last week, increase the likelihood of interest rate rises in the US before the end of the year. Dollar holds positions in the foreign exchange market, including against the safe-haven assets and commodity currencies. According to market participants, the rate will be increased in the US in December by 25 basis points to a level of 0.75%.

With the opening of today's trading day, the US dollar depreciated against most currencies. The probability of the Fed raising interest rates in September is currently estimated at 18%, but investors do not rush to cover short dollar positions. Large-scale decline in the US currency boosted the pair NZD / USD with the opening of today's trading. However, given the different directions of the monetary policy in the United States and New Zealand, in the medium term we should expect decrease in pair NZD / USD.

Source: https://fxpcm.com/en/fx/nzdusd-expected-interest-rate-cut-10082016
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