12.11.201908:45 Forex Analysis & Reviews: NZDUSD. On the eve of the RBNZ meeting: the kiwi can update its annual low

Dollar pairs are waiting for tomorrow's high-profile events: key data on inflation in the United States will be published on Wednesday, and Fed Chairman Jerome Powell will speak in Congress. But for traders of the NZD/USD pair, this day is also important for another event - the results of the last meeting of the Reserve Bank of New Zealand this year will be announced on November 13.

According to general market expectations, the New Zealand regulator will reduce the interest rate to 0.75% - the probability of this step is almost one hundred percent. The dovish intentions of the RBNZ are already embedded in current prices: since July this year, the NZD/USD pair has dropped from the 67th figure to the area of multi-year lows (range 0.6250-0.6350). The intrigue of tomorrow's meeting is to determine the future prospects of monetary policy. If the central bank does not exclude a reduction in the rate to 0.5% at the beginning of 2020, the kiwi can update the price low, plunging to the bottom of the 62nd figure. The Reserve Bank of New Zealand, as we know, knows how to surprise.

Let me remind you that this summer the RBNZ shocked traders with the fact that without any clear warning it lowered the interest rate by 50 basis points at once. The market was confident that the regulator would gradually soften monetary policy, so the reaction of investors was appropriate. To date, market participants are also confident that the central bank will resort to easing monetary policy. Even on the eve of the September meeting, most experts said that the regulator would either lower the interest rate or announce its decrease at the final meeting this year - in November.

However, members of the Reserve Bank of New Zealand then showed a surprisingly restrained position, voicing optimistic assessments regarding the growth prospects of the national economy. So, according to Adrian Orr, the monetary and fiscal stimulus measures taken by the regulator and the government will bring positive results at the beginning of next year. The growth in economic activity will be determined primarily by the growth of government spending, investment and monetary conditions, Orr said. At the same time, he virtually ruled out the use of "non-traditional monetary policy instruments" (first of all, we are talking about the notorious QE), repeating that the economy of New Zealand is "in fairly good shape".

This surge of optimism came as a surprise - the NZD/USD pair was able to adjust to the 64th figure, especially against the backdrop of the weak position of the US currency and positive rumors about the prospects for US-Chinese negotiations. But the respite did not last long: after reaching the local price peak of 0.6430 (November 4), the pair fell, currently settling at the bottom of the 63rd figure. It is likely that in the near future, the kiwi will update the annual (and multi-year) low, especially if the stars "fail to converge" for NZD/USD: the US dollar will strengthen as a result of Powell's speech, and the New Zealand currency will weaken as a result of the November meeting of the RBNZ. At least, there are all prerequisites for the implementation of this scenario.

First of all, macroeconomic reports are of concern. In particular, recent data on New Zealand's GDP growth have confirmed a slowdown in the national economy. In the second quarter, the indicator grew to only 2.1% (in annual terms), and in quarterly terms - by 0.5%. This suggests that New Zealand's economy has slowed to its lowest level in five years, reflecting the effects of the global trade conflict.

Labor market data released last week also turned out to be rather weak. After falling to 3.9%, in the third quarter the unemployment rate jumped immediately to 4.2%. The increase in the number of employees likewise demonstrated a negative trend. If in the second quarter this indicator reached 0.6% QOQ, then in the third quarter it dropped to 0.2%. In annual terms, the picture is not better - the indicator has been steadily decreasing since the third quarter of 2018, having decreased from 3.7% to the current 0.9%. In addition to the above, it is worth noting that the level of wages in the private sector also decreased in the third quarter.

The external fundamental background is also not an "ally" of the New Zealand dollar. Recent comments by US President Donald Trump are alarming with their "coolness" regarding China (especially amid his previous tweets on this topic). He denied reports from many media that the White House could completely abolish tariffs against China in exchange for concluding a deal. Trump also said that he had not yet made a final decision regarding the phased cancellation of tariffs already imposed by Washington in relation to China. The escalation of violence in Hong Kong may also endanger the conclusion of a deal (according to some Beijing representatives, Hong Kong protesters secretly support or even finance Washington).

In turn, the head of the RBNZ following the results of the last meeting noted that world economic activity continues to weaken, and this fact reduces the demand for goods and services in New Zealand. Given the voiced position, it can be assumed that at tomorrow's meeting, the regulator will increase concern about the negative impact of external fundamental factors.

Thus, the NZD/USD pair maintains its downward potential, and may weaken at least to the level of the annual low (0.6201). If the RBNZ allows a further reduction in the rate at the beginning of next year, the kiwi will be at this level by the end of the week.