- New Zealand enters three-day lock after one confirmed Covid-19 case in Auckland
- The probability of an increase in RBNZ of 25 bps decreases from 100% to 85%
- NZD / USD relies on the key support area
The New Zealand Dollar is this morning after a 3-day lock has been announced. This is after the first Covid-19 case was discovered in the country since February, with Auckland having an extended 7-day closure, as it is the only case confirmed in the last six months.
The decision was made by Prime Minister Jacinda Arden, who says that “it is better to start high and fall to a level than to start too low, not to control the virus and see it move quickly”. Both New Zealand and Australia have been praised in the past for their prompt action against the virus, but this nationwide closure may seem a bit extreme based on one confirmed case.
However, this is not the main concern of the markets, as the three-day closure is unlikely to affect the local economy little or not at all, with the growing calls from economists predicting that New Zealand Reserve Bank (RBNZ) does not change Overnight cash rate (OCR) tomorrow’s meeting, which is a pivotal expectation that it will be the first central bank to raise interest rates. In fact, at a meeting on Wednesday, the money markets estimated a rise of 25 basis points with a 100% probability and a 50 basis point probability that the bank would rise by 50 basis points. It has now been updated with an 85% 25-bit increase probability and a 15% change.
NZD /USD moves down due to this change in expectations, but I expect RBNZ to continue to follow its planned timetable, which would probably involve raising the interest rate by 25 bits per second for tomorrow’s meeting, as this decision would have been made a few days earlier and I have a hard time believing they would change their mind overnight. on the basis of a preventive measure.
However, this situation has made it difficult to predict and anticipate the reaction of the New Zealand dollar in the context of tomorrow’s meeting, as what seemed like a transaction made a few hours ago is now in the air. I would expect the unchanged OCR to be a blow to the kiwi that could send NZD / USD below the current support range (0.6938 – 0.6883).
Alternatively, if the interest rate hike is actually confirmed, then I expect to see the pair back above 0.70, where it was before the closure was announced, and maybe maybe try to exceed 0.7093 resistance.
NZD / USD per day schedule
– Written by Daniela Sabin Hathorn, market analyst
Follow Daniela on Twitter @HathornSabin