NZD/USD drops to one-month low, tests 200-day SMA support near 0.6100

NZD/USD turns lower for the sixth straight day in reaction to not so not-so-optimistic Chinese economic outlook.
A modest USD downtick could lend support to the pair, though bets for a 50 bps RBNZ rate favor bears.
Diminishing odds for an aggressive Fed easing limits the USD slide and validates negative bias for the pair.

The NZD/USD pair attracts some sellers following an Asian session uptick to the 0.6145 region and drifts into negative territory for the sixth successive day on Tuesday. Spot prices drop to a one-month low in the last hour, with bears awaiting a sustained break below the technically significant 200-day Simple Moving Average (SMA), around the 0.6100 mark, before placing fresh bets.

The National Development and Reform Commission (NDRC), China’s state planner, said this Tuesday that the downward pressure on China's economy is increasing. This offsets the recent optimism led by China's stimulus bonanza and turns out to be a key factor behind the latest leg of a sudden fall witnessed in the last hour. Apart from this, expectations for a jumbo interest rate cut by the Reserve Bank of New Zealand (RBNZ) contribute to the offered tone surrounding the NZD/USD pair.

The US Dollar (USD), on the other hand, remains on the defensive below a seven-week top touched on Friday, though it lacks any meaningful selling amid diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). Furthermore, escalating geopolitical tensions in the Middle East might continue to offer support to the safe-haven buck and drive flows away from the risk-sensitive Kiwi, suggesting that the path of least resistance for the NZD/USD pair remains to the downside.

Economic Indicator

RBNZ Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) announces its interest rate decision after its seven scheduled annual policy meetings. If the RBNZ is hawkish and sees inflationary pressures rising, it raises the Official Cash Rate (OCR) to bring inflation down. This is positive for the New Zealand Dollar (NZD) since higher interest rates attract more capital inflows. Likewise, if it reaches the view that inflation is too low it lowers the OCR, which tends to weaken NZD.

Why it matters to traders?

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by Governor Adrian Orr’s press conference.

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