EUR/NZD awaits the RBNZ interest rate decision

• EUR/NZD overbought ahead of the RBNZ interest rate decision. 
• To the upside, 1.7290 is a key resistance while to the downside, 1.6550s are a focus.

EUR/NZD has benefited from an unwind of carry trades in the EM-FX arena that saw a buyback in the euro and a covering of short positions as stops were triggered in EUR/USD.

The PBoC’s stronger-than-expected fixing of the yuan yesterday was bonus for the cross while the Chinese reiteration that it won’t seek to competitively depreciate, helped stabilise markets a touch, although the cross still managed a run higher. There was also news that the US expects China to visit in September for further trade talks, allaying fears of a further escalation in the trade war

All eyes on the RBNZ

The event today comes with the Reserve Bank of New Zealand, (RBNZ), although trade wars are the major theme and much of the RBNZ's likelihood of a rate ct has already been factored in.

Analysts at Westpac offered there outlook and thoughts for possible scenarios as follows:

Market neutral:

Forecasts will show the OCR dropping to 1.1% .
A 70% chance we think.
NZD/USD +30 pips.

Our dovish scenario:

A 25% chance.
Cut, and an OCR forecast lowered to 1.0%.
NZD/USD would fall 1c.

Our hawkish scenario:

A 5% chance.
Cut and an OCR forecast indicating no further easing.
NZD/USD would rise 1.3c.

Overnight, the GDT dairy auction resulted in prices overall falling 2.6% which could be related to the weakening of the Yuan and US trade wars. 

EUR/NZD levels

To the upside, 1.7290 is a key resistance while to the downside, 1.6550s guards a run to 1.6305. A 23.6% retracement of the recent rally opens 1.7060 on the way down.