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New Zealand cut rate by 25bps; traders waiting for ECB meeting tonight

By Margaret Yang

New Zealand’s central bank again lowered the official interest rate by another 25 base points (bps) to 2.25% at 4am Singapore time this morning. Kiwi (NZD/USD) fell more than 130 price interest points (pips) to 0.6640 after this announcement. Prior to this, 65% of the analysts expected the rate to be unchanged this time according to a Wall Street Journal survey. This is the 5th rate cut for the country since June 2015. The central bank governor Graeme said that further policy easing may be required to reach the inflation target.

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NZD/USD

Tonight the European Central Bank (ECB) is going to make a decision: to venture deeper into the unconventional monetary policy by cutting down their interest rate by another 10 bps? The policy makers have been under significant pressure to expand the support for a European economy that is losing growth momentum and facing the threat of deflation.

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Here are some of the market’s expectations for the upcoming ECB meeting on 10th Mar, 20:45pm Singapore time.

1. Deeper into negative territory - Deposit facility rate -0.4% from -0.3%

2. More quantitative easing - Monthly purchases 75bn euro from 60bn

3. Possible extension of minimum time - Q4 2017 from Q1 2017

The European economy has been more and more reliant on the central bank’s stimulus, which in the short term could bring some sparks to the market but in the longer term, it creates a more difficult environment for banks and may distort the allocation of capital.

Germany 30 – Cash (Daily chart)

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Key technical indicators to watch:

· Immediate support level – 9570

· Immediate resistance level – 9840

· A few doji candles have appeared recently, indicating market is hesitating to find a direction before the ECB meeting.

· 200-day moving average is sloped down – mid to long term bearishness remains

About the author

Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.