Global macro overview for 10/08/2017:
The Reserve Bank of New Zealand left the Official Cash Rate (OCR)unchanged at the level of 1.75% as expected. In the official statement, the RBNZ said, that monetary policy is expected to remain accommodative for a long time, in order to support growth and guide inflation towards the RBNZ’s target on a sustained basis. Numerous uncertainties remain and policy may need to adjust accordingly as the lower NZD is needed. Longer-term inflation expectations remain well-anchored at around 2% and future headline inflation is projected to reach the midpoint of the target band over medium-term. Headline inflation is likely to decline in coming quarters, but global growth has increased and domestic economic growth is expected to improve.
This dovish tone of the statement was broadly expected given the weaker balance of economic data over the last few months. However, while the RBNZ acknowledged the recent softer data, it held the line on just about every aspect of its forecasts as the projected OCR path was identical to the June statement. The RBNZ is maintaining a relatively positive view on the domestic growth outlook, continues to see the unemployment rate trending lower, and wage growth rising. As such, non-tradable inflation still rises gradually within the forecasts. Moreover, the overall tone of the statement signals clearly that it is going to take a lot of accumulated evidence to warrant a departure from this cautious stance in either direction. For now, the NZD is weakening across the board and further weakness is anticipated.
Let’s now take a look at the NZD/USD technical picture at the H4 timeframe. After the interest rate news was released, the price moved lower towards the level of 0.7333 support and broke below it. The market conditions are oversold, but the price action remains sideways. The technical resistance at the level of 0.7333 is the key to the upside for bulls.
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