Daily Market Recap – NZDUSD RBNZ ends QE

The New Zealand dollar is up sharply this morning against other major currencies after bouncing off major support following the RBNZ's decision to end its “LSAP” QE.

The NZDUSD jumped more than 1% following the decision by the Reserve Bank of New Zealand (RBNZ) to end its asset purchases under its large-scale quantitative easing program (LSAP) that began at the start of the pandemic as of July 23.

The market had expected the RBNZ to scale back its support measures, but perhaps not as much and as quickly.

This move marks the beginning of a withdrawal of support measures by the New Zealand central bank, with the next step being an increase in the official policy rate (OCR) which could take place as early as August according to the ASB. Australia's Westpac Commercial Bank estimates the first-rate hike by the RBNZ in November.

The normalization of the RBNZ monetary policy is obviously supported for the New Zealand dollar, especially against currencies whose central banks are not ready to normalize theirs, such as the Bank of Japan, the Reserve Bank of Australia, and the Swiss National Bank.

Meanwhile, the outlook for the Fed's monetary policy normalization is fuelled by the numerous publications showing significant inflation in the near term. Although inflation is expected to normalize in the coming months, it is causing many FOMC voters to advance their outlook for a Fed rate hike, meaning that the Fed should soon begin to reduce its monthly asset purchases.

In terms of technical analysis, the outlook for the NZDUSD is neutral, but could quickly turn bearish on a breakout from the bottom of the descending triangle. Indeed, a pullback below the $0.6943 support would open the way for a bearish reversal of the NZDUSD to the symbolic $0.65 level.

(Chart Source: Tradingview 14.07.2021)

In the absence of a pullback below $0.6943, the outlook remains technically neutral and long-term bullish. However, it will be preferable to wait for a breakout from the top of the triangle before buying. For now, the outlook for the NZDUSD remains neutral.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.