admin After a bigger than expected interest rate cut by the Reserve Bank of New Zealand (RBNZ), Gold is shining bright in New Zealand
It is currently trading at NZ$ 2,304 per Oz, which is the highest level since November 2011 and can break the record high of NZ$ 2,324.80 hit in August 2011.
Today, the RBNZ cut the official cash rate (OCR) by 50 basis points to 1%. The market was priced for a quarter-point rate cut.
The central bank also clipped OCR predictions for 2019 and 2020 and said that the 50 basis point rate cut was necessary to support employment and inflation.
The bigger-than-expected rate cut sent the NZD lower across the board. Notably, the NZD/USD pair nosedived to a ten-month low of 0.6436 following the central bank’s rate decision.
With central banks across the globe considering aggressive rate cuts, the path of least resistance for gold is to the higher side. Gold being a hard currency with limited supply tends to benefit from inflationary policies pursued by central banks.
The NZD/USD, after the RBNZ, is aiming to resume the near-term downtrend from the end of July. Support, which is a range between 0.6482 and 0.6501, is on the verge of being taken out. Prices are now eyeing October 2018 lows which if taken out, exposes the next psychological barrier between 0.6348 and 0.6403.
This is accompanied by bearish-contrarian price signals that IG Client Positioning is showing on the New Zealand Dollar. If net-long positioning continues to rise, this may exacerbate declines in NZD/USD.
In the near-term, the NZD/USD will be closely eyeing the upcoming press conference from RBNZ Governor Adrian Orr. Odds of a further 25bps rate cut are about 50% according to overnight index swaps. If he errs on the side of caution and underpins the focus on data-dependency, this may offset recent selling pressure in the New Zealand Dollar.
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