Channel resistance to be watched on kiwi dollar following RBNZ

Two weeks ago, I suggested that the kiwi dollar could stop falling (after 12 consecutive weeks of declines against the US dollar) as a long term support at $0.65 was being tested. Prices are back up to $0.6515 just before the RBNZ rate statement later today. The consensus expects another 25 bp cut in the main refinancing rate to 3.00%. The latest cut took the markets by surprise in June, but I'm a bit skeptical of a strong movement downward this time around given that it may already be priced in (this doesn't necessarily mean that there will be a kiwi rally following the statement. To me, what really matters is the language in the press release. I don't expect much of a change from the June statement, but it is very likely that the RBNZ maintains an overall dovish stance with regards to inflation expectations given continued decline in commodities prices since June. The GlobalDailryTrade (GDT) price index (www.globaldairytrade.../en/product-results/) fell to all-time lows on 15 July, which may weigh further on New Zealand export prices. In the event that the RBNZ doesn't announce a rate cut today, I'll still maintain a fundamental bearish bias on the kiwi dollar and will look for any additional dovish information in the press release to support this view. As for technicals, so long as prices trade below $0.67 following the rate statement, short strategies may come back into play. If prices test the channel resistance (currently around $0.67) with rates unchanged, this is where I'd be looking for further dovish hints in the press release to really consider a short trade (initial target at $0.65 with stop above $0.6750).

Conclusion : technicals and fundamentals may line back up following the RBNZ statement today, providing new opportunities to short the kiwi dollar.