RBNZ - hold or fold and what it means for AUDNZD

This Wednesday, the RBNZ meets to discuss whether it will follow in the steps of the RBA and keep its official cash rate (OCR) on hold this month or cut rates by 25bp to 0.75%, taking its cumulative total of cuts in 2019 to 100bps. In recent weeks the market has become more evenly divided on this matter. Reflecting this division, the New Zealand Institute of Economic Research (NZIER) Shadow Board which is independent of the RBNZ, voted on the weekend to keep the OCR on hold. Central to the Shadow Boards' decision was “renewed signs of housing market activity” and the financial stability risks of interest rates being set too low.

This Wednesday, the RBNZ meets to discuss whether it will follow in the steps of the RBA and keep its official cash rate (OCR) on hold this month or cut rates by 25bp to 0.75%, taking its cumulative total of cuts in 2019 to 100bps.

In recent weeks the market has become more evenly divided on this matter. Reflecting this division, the New Zealand Institute of Economic Research (NZIER) Shadow Board which is independent of the RBNZ, voted on the weekend to keep the OCR on hold. Central to the Shadow Boards' decision was “renewed signs of housing market activity” and the financial stability risks of interest rates being set too low.

Stronger than expected September quarter inflation and the stimulatory effect of the NZ trade weight index (TWI) about 3-4% below the RBNZ’s own forecasts perhaps also played a part. Despite the rise in the Q3 unemployment rate to 4.2% last week, it is exactly where it started the year and also below the RBNZ’s forecast of 4.4%. 

Offsetting these positives, the outlook for global and domestic growth has weakened to the point the RBNZ is likely to follow the RBA and downgrade its September quarter GDP growth forecast (released December 19th) as well as its GDP forecasts for the December quarter.

Taking into account all of the factors mentioned above and our thoughts penned recently in this article https://www.cityindex.com.au/market-analysis/central-banker-chit-chat-and-the-nzd/ our feeling is the RBNZ will elect to stay on hold on Wednesday to allow more time to asses the impact of its previous cuts.

Turning to the charts, evidence is building that AUDNZD completed a five-wave advance at last week’s 1.0865 high from the August 1.0264 low. Supporting the wave count is the bearish divergence as noted on the RSI indicator.

In a nutshell, we feel that the AUDNZD rally has extended far enough for now and there are some risks in holding AUDNZD longs into Wednesday’s RBNZ meeting. As such, we would prefer to go into the meeting flat the cross and looking for a pullback towards key Fibonacci support 1.0640/1.0570 as a possible area to re-open AUDNZD longs.

RBNZ - hold or fold and what it means for AUDNZD

Source Tradingview. The figures stated areas of the 11th of November 2019. 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

Disclaimer

TECH-FX TRADING PTY LTD (ACN 617 797 645) is an Authorised Representative (001255203) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)

Trading foreign exchange, futures and CFDs on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, futures or CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange, futures and CFD trading, and seek advice from an independent financial advisor if you have any doubts. It is important to note that past performance is not a reliable indicator of future performance.

Any advice provided is general advice only. It is important to note that:

  • The advice has been prepared without taking into account the client’s objectives, financial situation or needs.
  • The client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice.
  • If the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (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.

For further details see our full non-independent research disclaimer and quarterly summary.