Will the RBNZ Rate Decision Break NZDUSD From Its Short-Term Range?

The New Zealand dollar has been relatively range bound against some of the majors, but especially the US dollar. Will the Reserve Bank of New Zealand’s upcoming rate decision shake the currency loose?

The Reserve Bank of New Zealand (RBNZ) is anticipated to leave the Official Cash Rate target unchanged for the second straight meeting at 2.50 percent. In RBNZ Governor Alan Bollard’s last policy statement, he said that there was evidence that “international economic activity is stabilizing and international financial conditions are improving.” Bollard also noted that “for the first time in some months,” there were “clear upside opportunities for activity.” However, these comments were some of the only confident ones, as he went on to focus on 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. A reiteration of these talking points within the upcoming policy staement could push the New Zealand dollar higher once again. However, the currency may pull back if the central bank sounds more cautious on growth prospects and leaves the door open once again to “modest” reductions “in coming quarters,” as they’ve said in the past that they “expect to keep the OCR at or below the current level through the latter part of 2010.”

Looking to NZD/USD, the pair has held within a very tight range recently, with support at 0.6650 and resistance at 0.6641. If this upcoming policy statement doesn’t yield any biased comments, NZD/USD may remain contained to the range.

Source: FXTrek Intellichart

That said, there is important resistance to keep in mind, as 0.6641 doesn’t just notate the recent highs in NZD/USD, but also marks the August 2007 spike low. This should prove to be a good “line in the sand” for the pair, as a break higher would open the door to more significant rallies toward 0.6950/0.7000.

[I]Source: FXTrek Intellichart

Based on AUD/NZD techs, though, there is evidence to suggest that NZD could be in store for additional losses. Indeed, AUD/NZD broke above a falling trendline as well as the 100 SMA this morning, which generally serves as a bullish signal for the pair.

[I]Source: FXTrek Intellichart[/I]

Of course, there is one more caveat: monthly AUD/NZD charts show significant resistance at 1.2850 from a 27-year falling trendline. In fact, the past few months have really marked nothing more than a consolidation period below this line. What does this tell us? For short-term traders, the intraday price action that may accompany Wednesday’s RBNZ rate decision may offer short-term opportunities. However, with no real change in policy anticipated, the news won’t be a good trigger for longer-term trades, but multi-year levels of resistance will still be important to watch.

[I]Source: FXTrek Intellichart[/I]