NZD/JPY drops by 70 pips as RBNZ opens the door for negative rates

• NZD/JPY takes a hit as RBNZ expresses willingness to cut rates to negative territory. 
• A convincing move below the 50-day average looks likely and could invite stronger selling pressure.

The offered tone around the New Zealand dollar strengthened, pushing the NZD/JPY lower to 64.66 from 65.37 after the Reserve Bank of New Zealand (RBNZ) said it is prepared to cash rate further. 

The central bank said that a negative official cash rate (OCR), or benchmark interest rate, will become an option in the future. 

RBNZ's willingness to cut rates further validates Westpac's forecast for negative rates by November. The central bank's interest rate currently stands at 0.25%. 

The dovish comments on rates were accompanied by a status quo policy. The central bank left rates unchanged at 0.25% and expanded the Large Scale Asset Purchase (LSAP) program potential to $60 billion from $30 billion, as expected. 

Looking forward, markets are likely to price in prospects of negative rates in New Zealand, sending the NZD lower against most majors. 

From a technical analysis standpoint, the bias for NZD/USD would turn bearish if the spot prints a close below the 50-day average of 64.72 on Wednesday. That will likely yield bigger losses to 63.55 (May 7 low). 

Technical levels