The Reserve Bank of New Zealand expects the coronavirus impact on the economy to be severe and long-lasting while the NZD/USD pulls back from the fresh yearly high of 0.6789. The downtick in the pair might extend further in the coming days as the Relative Strength Index has turned before reaching the overbought reading.
NZD/USD has made a series of lower highs and lows after moving above the January high of 0.6733. RBNZ Governor Adrian Orr sounded too dovish recently while discussing the economy and the bank’s approach to containing the economic reversal due to the pandemic.
The governor provided an overview of the package of the tools intended to fight back the economic slowdown. The instruments elaborated by him include negative interest rates, further quantitative easing, direct lending to banks, and forward guidance.
The Monetary Policy Committee of the central bank intends to deploy the tools after expanding Large Scale Asset Purchase to NZ$ 100B.
The governor said, “it was better to risk doing too much too soon, than too little, too late.” But, the chances of any change in the September 22 meeting is low as the governor has indicated readiness to outline future monetary policy strategies and tools, and their timing.
The RBNZ might alter the forward guidance gradually over the coming months, and the bias towards further monetary stimulus from the bank can create headwinds for the NZD.
For the time being, the NZD/USD might stay afloat as the US Fed is sustaining its emergency measures and has also adopted a more accommodative stance on inflation. The retail traders have been net short the US dollar since mid-June, and the crowding behaviour in the greenback might persist.