NZD/USD inches closer to August high after RBNZ’s capital decision

• NZD/USD takes the bids to the highest levels since early-August.
• RBNZ announces a 16% capital ratio with less transition period and upbeat comments.

NZD/USD rises to the fresh high since August while taking the bids to 0.6555 during Thursday’s Asian session. The latest catalyst for the surge comes from the Reserve Bank of New Zealand’s (RBNZ) capital decision.

The RBNZ recently announced its final decision on banks’ capital requirements while saying, “The key decisions, which start to take effect from 1 July 2020, include banks’ total capital increasing from a minimum of 10.5% to 18% for the four large banks and 16% for the remaining smaller banks.” Though, an extended transition period, from five to seven, and changes to the definition and amount of allowable Tier-1 capital seem to offer relief to the banks.

More importantly, the policymakers cited optimism while suggesting the impact on the economy will be negligible, with an impact of around 20bps on lending rates. With this, the Australia and New Zealand Banking Group says, “we continue to see a lower OCR in time and these changes will contribute to that, though less than previously expected. A softening of the proposals, combined with a more positive domestic outlook (and in particular upside to government infrastructure spending), mean we are changing our OCR call to only one further 25bp OCR cut in May next year, taking the OCR to 0.75%. We will review once we have more detail in the fiscal update next week.”

Earlier during the day, New Zealand’s third quarter (Q3) Construction Spending rose to 0.4% versus -1.5% prior.

The recently renewed sentiment surrounding the phase-one deal between the United States (US) and China also seems to help the pair register the gains.

The economic calendar has no domestic data/event up for publishing but Retail Sales and Trade Balance from the largest customer Australia can offer immediate direction. Further, the US data-line is a bit longer that could join trade headlines to offer a busy day ahead.

Technical Analysis

Overbought conditions of 14-bar Relative Strength Index (RSI) can stop kiwi Bulls around 61.8% Fibonacci retracement of July-October downpour, near 0.6570, failure to do so can print 0.6500 on the chart.