The Reserve Bank of New Zealand (RBNZ) just delivered another 25 bps rate cut, taking the Official Cash Rate down to 2.25%.
For many retail traders this would be considered bad news for the NZD, and for most of this year, it absolutely has been.
However, this cut might actually mark the end of the easy money cycle, not the beginning of a deeper one.
RBNZ Dovish but Turning Neutral
Despite cutting rates the RBNZ are no longer committing to further cuts.
This is VERY important as a trader, as the central bank’s tone has shifted. Before they made it very clear that they needed to cut interest rates, but now they are back to “data dependent”.
Now we need to be looking closely at the inflation, growth and labour market data to determine the central bank's next move.
Markets to Watch if NZD Rallies
NZDJPY
The yen is weak, but NZDJPY is extremely stretched after months of NZD selling.
If we see short covering + risk appetite returning, this pair can unwind sharply.
Look for a break above the daily resistance level of 89.00.
Watch BOJ commentary for any hawkish shifts, this could add risk to the breakout potential.
GBPNZD
GBP has its own problems, rising unemployment, slowing wage growth, and heavy expectations for a December cut.
If NZD strengthens and GBP weakens? GBPNZD is the cleanest NZD reversal chart.
The pair is sitting near multi-month highs.
Any structural breakdown could accelerate quickly.
NZDCHF
CHF is strong, but it’s overextended across the board.
This makes NZDCHF one of the most interesting mean-reversion trades if NZD turns.
SNB cutting rates to 0% has removed some CHF appeal.
Risk-on environments often lift NZDCHF fast.
This is the pair to watch if volatility drops and risk appetite returns.