Home Forex News NZD/USD Mounts A Recovery But The RBNZ’s Policy To Expand LSAP Could...

NZD/USD Mounts A Recovery But The RBNZ’s Policy To Expand LSAP Could Derail more Gains

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The NZD/USD pair has continued to extend its good performance form early this week after the exchange rate initiated a new series of lows and higher highs. However, this latest rebound could be short-lived after the New Zealand Reserve Bank (RBNZ) said that it will expand the Large Scale Asset Program.

RBNZ expands the Large Scale Asset Purchase Programme By $3 billion

Various central banks have introduced stimulus packages to cushion the economy amid the on-going coronavirus crisis. The NZD/USD is showing similar characteristics as the Australian counterpart. Both exchange rates are tagging new highs following the Reserve Bank of Australia’s warning that less frequent and smaller purchases of bonds will be necessary if the current market conditions improve.

Nevertheless, the RBNZ seems likely it will continue deploying unconventional measures to shore up the country’s economy. The central bank has announced that another $3 billion will be added to the Large Scale Asset Purchase programme. This addition brings the total for the programme to around $33 billion in the last 12 months.

However, it is unlikely that the central bank will take other measures to stop the weakening growth outlook. RBNZ will give an economic assessment update on the size and extent to LSAO on May 13th. Unlike Australia, the New Zealand central bank could continue endorsing dovish guidance as it plans to offer continuous monetary support through QE and other ways.

NZD/USD analysis

As RBNZ tries to keep official cash rate (OCR) at the current level for a year the dovish sentiment might drag the NZD which might push the NZD/USD to shed some of the gains racked from the yearly low of 0.5469. The NZD/USD is showing bearish sentiment with resistance at $0.6006 and a support level of $0.5926.

The negative trend in the 200-day SMA and 50-day SMA gives a bearish outlook for the pair and the recovery from its yearly low might continue in the coming days.

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