NZD/USD Rallies in Response to Neutral RBNZ Decision, But Downside Risks Remain

The Reserve Bank of New Zealand (RBNZ) left their Official Cash Rate target unchanged for the first time since June 2008 at 2.50 percent, as expected, citing evidence that “international economic activity is stabilizing and international financial conditions are improving.”

RBNZ Governor Alan Bollard was cautiously optimistic in his post-meeting policy statement, saying that “for the first time in some months,” there were “clear upside opportunities for activity.” However, Bollard also noted downside risks to activity and inflation, with the appreciation of the New Zealand dollar creating an “unhelpful tension” with their projections. That said, Bollard wrote off the need to intervene in the FX markets, saying that neither intervention nor a rate cut would impact the currency.

Going forward, the RBNZ has left the door open to “modest” reductions “in coming quarters” as they reiterated their previous statement that they “expect to keep the OCR at or below the current level through until the latter part of 2010.” Keeping this in mind, the New Zealand dollar’s initial rally in response to this policy decision could ultimately prove to be short-lived. Levels to watch in the near-term include falling trendline resistance at 0.6330 and rising trendline support at 0.6200/10.

[I]Source: FXTrek IntelliChart[/I]