Can the RBNZ keep the Kiwi grounded - NZDUSD
Tony Sycamore June 23, 2020 6:30 AM
Yesterday we noted that 2020 had been anything but your typical type of year. However this morning it was a theme from 2019, that re-emerged to rattle risk assets as headlines circulated and were then retracted, that the trade deal between China and the U.S. was “over.”
This morning’s volatility was another reminder that the fortunes of risk currencies remain closely tied to the rise and fall of equities. However tomorrow at midday Sydney time, the NZD, a risk currency has a chance to do “its own thing” as the RBNZ meets to discuss interest rates.
While the RBNZ is widely expected to keep interest rates on hold at 0.25% there will be keen interest to see how the RBNZ attempts to juggle the positive surprise coming from the suppression of COVID-19 that allowed New Zealand to move from Level 2 restrictions to Level 1 (the loosest in G10) after just 1 month.
Verse the negative impact of an exchange rate that has risen by 4.5% over the past 6 weeks, defying the RBNZs expectations for a fall. As well as the loss of jobs that come as New Zealand’s borders remain closed to international tourists, a sector that represents 5% of the economy.
In terms of forward guidance, the RBNZ is expected to remind that negative interest rates remain an option as does lifting the cap of the Large Scale Asset Program (QE) if needed. All in all, the RBNZ is expected to attempt to sound a cautiously optimistic tone (without spooking the NZD higher) and that it remains ready to act again if needed.
Whether the RBNZ will be able to strike the right tone to limit future gains in the NZDUSD, from a technical perspective, I am doubtful.
The NZDUSD’s rally yesterday from .6381 (double low) suggests the correction from the June .6585 high is now complete. Should a break and close above last week’s .6507 high occur after tomorrow RBNZ meeting, it would warn the uptrend has resumed and that a test and break of .6585 is likely, before .6720.
Keeping in mind it would take a break and close initially back below .6380 and then the support from the 200 day moving .6320/00 to confirm the Kiwi has been grounded.
Source Tradingview. The figures stated areas of the 23rd of June 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.