New Zealand dollars. Image source: rochu2008 © 123RF.com
Earlier today, the Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand expectedly decided to maintain the Official Cash Rate unchanged at 0.25 per cent.
The Committee also refrained from changing the scope of its monetary policy stance, after it had decided to more than double its Large Scale Asset Purchase (LSAP) programme a month prior.
With those two decisions, the MPC adopted a completely neutral stance, as it continues to weigh in on the effectiveness of its $60 billion QE program that is already in place.
The vigilant stance of the Committee separates the RBNZ from other central banks, such as the FED, the ECB, and the BOE, all of which scaled up the sizes of their own asset purchase programs in June.
The spread of the novel coronavirus is for the time being contained in New Zealand, which lifts off some of the pressure that is exerted on the RBNZ and allows the Bank to remain watchful.
Even so, in the Monetary Policy Minutes, the Committee outlined some of the major impediments to growth that continue to weigh down on the economy:
"The severe global economic disruption caused by the COVID-19 pandemic is persisting, leading to lower economic activity, employment, and inflation abroad and in New Zealand. The negative economic impact on New Zealand is exacerbated by the required international border restrictions, as the vast majority of the world battles to contain the pandemic. The appreciation of New Zealand’s exchange rate has placed further pressure on export earnings."
These remarks prompted the New Zealand dollar to plummet in the short-term. The NZDUSD pair depreciated by almost 1 per cent following the publication of the statement.
As can be seen on the 4H chart below, the price action broke down below the 10-day EMA, as well as the Bollinger Bands' middle line.
The pair's price action is currently contained in a range, spanning between the major resistance level at 0.64800 and the major support level at 0.64000.
Given the sharp increase of selling pressure in the short-term, the currently evolving downswing could reach the range's lower limit, which bears psychological significance, before a rebound is observed.
NZDUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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