The New Zealand Dollar has been rallying firmly against USD today on the back of the November RBNZ meeting held overnight. The market was largely expecting the bank to announce further easing, with some players gearing for a move towards negative rates. However, the RBNZ held off from adjusting rates and instead announced a new lending program.

New Lending Program

The RBNZ’s Funding for Lending Programme (FLP), which will come into effect in December, will offer funding directly to regional banks at a rate near to the bank’s official cash rate. The RBNZ noted that the size of the FLP could be around $28 billion dependent on take up. The bank’s large scale asset purchase program was left unchanged at $100 billion.

While the RBNZ held rates unchanged this time around it did reserve the option of adjusting rates in future, including the possibility of negative rates next year, though noted that the OCR would be held at current levels until at least March 2021. However, the bank struck a notably more optimistic tone this time around.

Economy Improving

RBNZ chief Adrian Orr told markets that while “inflation and employment have been below target for a long time… we are starting from a better position because the domestic economy has proved more resilient.” Orr went on to note that “At this point it still is important that credit is widely available, spending and employment is promoted” and, commenting on the anticipated impact of the FLP, said the RBNZ “Expects to see pass through in lending rates to be full and wholesome.

Rates To Stay on Hold Until March 2021

Looking ahead, Orr said that “consumer price inflation is also projected to remain at the lower-end of the remit target range for a period”, the RBNZ judges that there will be “an ongoing increase in unemployment as the economy adjusts.” In consideration of the continued adjustment to the economy the RBNZ says it has “agreed to provide additional monetary stimulus to the economy in order to meet its consumer price inflation and employment remit” and has also “agreed it must remain prepared to provide additional support if necessary.” NZD has been higher in the wake of the meeting as traders adjust their rate path expectations over the coming months, with any further rate cut now pushed out until at least March 2021.

Technical Views

NZDUSD

From a technical viewpoint. Following the breakout above the long-term bearish trend line, NZDUSD has now broken above the .6794 level and is on course to test the .6933 level next. While above .6794, the outlook is skewed towards further gains in the near term especially give the broader risk-on backdrop.

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