The New Zealand Dollar drops to a seven-week low as the RBNZ reduces the interest rate by 50 basis points

The New Zealand Dollar (NZD) loses momentum, nearing its lowest level since mid-August on Wednesday. At its October meeting, the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 50 basis points, from 5.25% to 4.75%, as widely anticipated. The Kiwi faced immediate selling pressure following the rate decision. Furthermore, the lack of additional major stimulus from Chinese officials added to the downward pressure on NZD, as China remains a key trading partner for New Zealand, making the currency vulnerable to Chinese economic developments.

Looking ahead, traders will be watching for the Federal Open Market Committee (FOMC) minutes later on Wednesday. On Thursday, attention will shift to the US Consumer Price Index (CPI) data for September. A softer-than-expected CPI report could weaken the USD and potentially limit losses for NZD.

Daily Digest Market Movers: New Zealand Dollar stays weak post-RBNZ rate cut

• According to the RBNZ Monetary Policy Statement (MPS), the committee assesses that annual consumer price inflation is within the 1-3% target range.
• The committee agreed that cutting the OCR by 50 basis points was necessary to maintain low, stable inflation and avoid unnecessary instability in output, employment, interest rates, and the exchange rate, as noted in the RBNZ MPS.
• Federal Reserve Vice Chair Philip Jefferson indicated on Tuesday that the Fed’s 50 basis point rate cut in September aimed to strengthen the labor market while inflation continues to decline, per Reuters.
• Atlanta Fed President Raphael Bostic noted on Tuesday that the job market remains robust, while inflation has not yet reached the target levels despite significant progress.
• New York Fed President John Williams supported the September 50 bps rate cut and expects two additional 25 bps reductions this year as a reasonable base case, per Reuters.

Technical Analysis: New Zealand Dollar maintains downside momentum

The New Zealand Dollar continues its downward trajectory. The NZD/USD pair has crossed below the key 100-day Exponential Moving Average (EMA) and is on the verge of breaking below the ascending trend channel on the daily chart. This downward momentum is supported by the 14-day Relative Strength Index (RSI), which sits below the midline at 41.10, favoring sellers in the near term.

A decisive break below the lower boundary of the trend channel at 0.6135 could open the door for a drop to the psychological level of 0.6000. Sustained trading below this level might see the pair fall toward 0.5974, the low from August 15.

On the upside, immediate resistance comes from the 100-day EMA at 0.6142. Extended gains could lead to a rally toward 0.6254, the high from September 6. Further resistance to watch is the 0.6300 round figure, with the next upside target at 0.6365, the upper boundary of the trend channel.