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NZD/JPY spikes on RBNZ's hawkish interest rate forecast

  • NZD/JPY adds more than 50 pips on hawkish RBNZ. 
  • The central bank kept rates unchanged at 1% as expected. 
  • The forecasts for official cash rate show the bank expects rates to remain on hold throughout 2020.

The buying interest around the New Zealand dollar strengthened, sending the already bid NZD/USD higher to 70.96 from 70.40 after the Reserve Bank of New Zealand (RBNZ) kept rates unchanged at 1%. 

Markets were pricing a less than 10% chance of a rate cut. So, the status quo rate decision isn't a surprise. 

The central bank, however, has surprised traders by forecasting no chance of a rate cut in 2020. 

Markets were expecting the RBNZ to sound dovish by opening the doors open for a deeper rate cut, as the global economy is expected to take a hit in the first quarter due to coronavirus outbreak. The virus, which has spread around the globe, could have global economic impacts, Jerome Powell, the President of the Federal Reserve said on Monday. 

RBNZ's sanguine tone, coupled with risk rebound in the equity markets, as highlighted by the record highs in the US stocks, will likely keep the NZD/JPY better bid during the day ahead. At press time, the pair is trading at 70.90, representing 0.50% gains on the day. 

The RBNZ reduced the official cash rate by 75 basis points in 2019.  However, the odds for additional rate cuts fell sharply after the November meeting when the Bank unexpectedly kept rates unchanged. 

Technical levels

 

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