RBNZ Preview: will Orr & Co. follow RBA's lead?

• RBNZ Governor Orr and his new MPC will decide whether to cut rates or not.
• An on-hold stance would trigger a short-lived bullish run as the market unwinds shorts.

The Reserve Bank of New Zealand will announce its latest decision on monetary policy this Wednesday. The central bank is expected to cut the official cash rate to 1.5%, fresh historical lows, from the current rate of  1.75%.

As expected, the RBNZ abandoned the neutral stance in its March meeting, calling for a move down amid "the weaker global economic outlook and reduced momentum in domestic spending," according to Governor Orr's own words.  Mr. Orr has said that a rate cut this month was possible, but added it was a tough decision.

So, it´s up to Governor Orr and his new seven members´ MPC to decide whether it is premature to be easing monetary policy, in spite the market has already priced it in. That said, and as it happened with the RBA and the Aussie, the NZD may spike higher right after the decision, as speculative interest would likely unwind shorts. However, a sustained rally correlated solely to an on-hold decision in the current risk-averse environment seems quite unlikely.

In spite of the market's belief, there are chances that policymakers may decide not to move rates this month. RBA's decision is one of those. The other is that the latest New Zealand data suggest that business and investment confidence have improved. Nevertheless, inflation remains subdued, while the unemployment rate keeps rising.

 NZD/USD Technical Outlook

Ahead of the event, the NZD/USD pair trades near its April low of 0.6579, clearly bearish according to the daily chart, given that the pair is developing below its 100 and 200 DMA, while technical indicators stand within negative territory, the Momentum directionless yet the RSI heading south at around 35, skewing the risk to the downside.

The mentioned low is relevant, as below it, there's little in the way toward the yearly low set early January at 0.6549, this last, a more relevant support. Given that the market has already priced in a rate cut, a break below this last has fewer chances of taking place, yet if it happens, the decline may extend down to the 0.6500 price zone.

 To the upside, the immediate resistance comes at 0.6630, this week high, followed by the 0.6660/70 price zone. The pair would need to consolidate above this last to be able to continue advancing short-term up to the 0.6700 region.