RBNZ Increases QE & Signals Negative Rates Coming

<h2>QE Almost Doubled</h2>
<p>The Reserve Bank of New Zealand became the latest central bank to increase its monetary easing this week. At the May monetary policy meeting held overnight, the RBNZ announced that while rates will remain unchanged at the current record lows of 0.25% it will increase its bond purchases by nearly double from $33bln to $60bln.</p>
<p>In the statement issued along with the decision, the RBNZ noted its concerns over the continued downside risks from the COVID-19 crisis saying: “The global economic disruption caused by the COVID-19 pandemic is expected to persist and lead to lower economic growth, employment, and inflation both in New Zealand and abroad. Even if New Zealand successfully contains the spread of disease locally, reduced world activity will mean lower demand for many of New Zealand’s exports.”</p>
<h2>Negative Rates Under Discussion</h2>
<p>In terms of forward guidance, the bank had a decidedly dovish message for the markets. Acknowledging that the balance of risks “remained to the downside”, the RBNZ indicated that negative rates might be necessary in future, saying: “The committee noted that a negative official cash rate will become an option in the future, although at present financial institutions are not yet operationally ready. “It was noted that discussions with financial institutions about preparing for a negative OCR are ongoing.”</p>
<h2>Success Fighting COVID-19</h2>
<p>New Zealand has been among one of the most efficient countries in its handling of the COVID-19 outbreak. With only a total of 1.497 cases reported and a death toll of just 21, the country has not reported any new deaths in the last two days and is preparing to move to “level 2” of its measures as of midnight tonight.</p>
<p>However, despite the country’s success in managing the virus it is the ongoing crisis dominating the rest of the globe which causes the main issue for the country’s export led economy. With key trading partners still dealing with highly constrictive lock-down measures, demand for New Zealand’s exports continues to fall and this is what is causing the most concern for the RBNZ right now.</p>
<h2>Technical Views</h2>
<p><strong>NZDJPY (Bearish below 64.93)</strong></p>
<p>From a technical viewpoint. NZDJPY has been stuck in a fairly tight range (63.74 – 66.02 over the few months. With VWAP still negative and price having crossed below the monthly pivot (64.93) a further test of the range low looks likely now. Should price break below here, this will open up a test of the 63.03 level next. To the topside, bulls need to see a break above VWAP and the range high to gain momentum for a larger corrective move.</p>
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