NZ dollar surges, eyes inflation expectationsThe New Zealand dollar has started the week in positive territory. In the North American session, NZD/USD is trading at 0.6357, up 0.76%.
It has been a long break for the Reserve Bank of New Zealand, which last met in November. At the meeting, the central bank delivered a record 75-basis point hike, bringing the cash rate to 4.25%. The rate statement noted that the cash rate would have to rise higher and faster than previously expected in order to curb inflation. The RBNZ holds its next meeting on Feb. 22, with inflation now falling in most major economies. This makes Tuesday's Inflation Expectations release critical, as it is the final tier-1 release ahead of the rate meeting. Inflation Expectations rose to 3.6% in Q4, up from 3.0% in Q1 and the RBNZ will be watching closely, as the reading could signal in which direction inflation is headed. This could mean significant volatility for the New Zealand dollar after this release.
Inflation will also be the buzz-word on Tuesday in the US, with the release of the January inflation report. Inflation is projected to fall to 6.2%, down from 6.5%, but there is unease in the markets that inflation could be hotter than expected, as used car prices and energy prices climbed higher in January. If inflation is indeed higher than expected, the markets could fully price in two rate hikes of 25 basis points and remain uncertain about a third hike. This would be a huge shift from recent market thinking, which is that the Fed could hold rates after a 25-bp hike in March and cut rates late in the year. The US dollar has taken strong hits after recent inflation releases were softer than the forecast. If tomorrow's release is higher than expected, it could be payback time and the US dollar could post gains.
0.6375 is under pressure in resistance. Above, there is resistance at 0.6442
There is support at 0.6323 and 0.6256
Rbnz
NZD/USD higher ahead of retail salesThe New Zealand dollar continues to gain ground this week. In the North American session, NZD/USD is trading at 0.6267, up 0.35%.
New Zealand will release retail sales for Q3 later in the day. The markets are expecting a small gain of 0.5%, which would be a turnaround from a disappointing -2.2% in Q2. Consumers continue to struggle with high inflation and rising interest rates, and after back-to-back declines, a gain in retail sales would be welcome news.
The Reserve Bank of New Zealand delivered a huge 75-bp hike on Wednesday, which raised the cash rate to 4.25%. The move had been priced in by the markets, but the New Zealand dollar jumped 1.5%, thanks to the oversize move and a broadly-lower US dollar. The cash rate is the highest among major central banks, but there's more to come. The RBNZ has projected a terminal rate of 5.5% in 2023, which means more rate hikes in 2023. Inflation has been stickier than the RBNZ anticipated, and the bank's Monetary Policy Statement was decidedly hawkish, noting that “core consumer price inflation is too high" and "near-term inflation expectations have risen.”
The statement said that inflation is expected to accelerate to 7.5% in Q4 and would not fall to the midpoint of the 1%-3% target until 2025. The RBNZ is ready for a long fight with inflation, but it remains to be seen if the bank can guide the economy to a soft landing.
The Fed minutes reiterated that lower rates are on the way, which we've been hearing from a stream of Federal members over the past two weeks. The minutes were vague as far as a timeline, noting that smaller rate increases would happen "soon", as the Fed continues to evaluate the impact of the current policy on the economy. Members also voiced concern that inflation was yet to show any signs of peaking. Still, the markets viewed the minutes as dovish, which is weighing on the US dollar today.
NZD/USD is testing resistance at 0.6283. Above, there is resistance at 0.6361
There is support at 0.6217 and 0.6139
NZDUSD belatedly breaks up after hawkish RBNZ, broad USD selloffNZDUSD looks to have taken out resistance capped just below 0.6230, which may set the stage for upward extension toward resistance in the 0.6352-0.6469 zone. Reclaiming a foothold below 0.6150 now seems necessary to neutralize near-term upward pressure.
Prices were relatively staid after November's RBNZ announcement registered on the hawkish end of expectations - seeing some gains at first but struggling to find momentum - but overall USD weakness offered fuel thereafter (with November FOMC meeting minutes at least somewhat helpful in pushing the Greenback lower, though its slide began before the news hit the wires).
The RBNZ could push AUD/NZD down to the 1.07 and 1.06 handlesIf the RBNZ hike by 75bp tomorrow in line with the consensus, it will be their first hike of this magnitude on record. It would also mean they have to upgrade their terminal rate of their OCR projection, which could be deemed as a hawkish hike by markets and send NZD higher against other currencies. Of course, this also leaves the Kiwi dollar to weakness should the RBNZ surprise markets with a 50bp hike tomorrow.
As things stand, the RBA are expected to hike in 25bp increments and have even spoken of a potential 'pause' in rate hikes. This means RBNA remain the more hawkish than the RBA. This has allowed AUD/NZD to develop a nice bearish trend on the daily chart with timely swing highs, and prices are now on the cusp pf breaking lower and heading for 1.0700 and 1.0612. Unless we see a surprise 50bp hike tomorrow, the path of resistance appears lower for the cross and bears could seek to fade into rallies or short a break of new lows.
- Initial target is 1.0700, then the 1.0612 low.
- The bias remains bearish below 1.0900.
Will the NZD rally or reverse after the RBNZ rate decision? The NZD/USD has been on an uptrend since mid-October. However, this rally may be on a temporary halt as the pair hits the upper trend line on its downward channel, as shown below in the daily timeframe chart. For now, the long-term downtrend, since the start of the year, is still intact and could signal a possible reversal for the short-term rally for the New Zealand dollar.
Fundamentals will be playing a huge part in the direction of the NZD/USD this week. The market is showing some risk aversion due to renewed lockdown worries in China and a possibility that the US Federal Reserve will not let up on its aggressive tightening cycle in the upcoming FOMC meeting. The focus for now, however, is the interest rate decision from the Reserve Bank of New Zealand (RBNZ) this Wednesday. Markets are widely expecting a 75-basis-points hike, but a 50-basis-points hike is still entirely possible, thus some volatility might be injected in the markets if expectations are not met.
Back to the technical perspective, there is a double top formation with a gravestone Doji candle as the price fails to create a higher high above the 0.62000 area in the 4-hour chart.
Using the Extreme Trend Reversal Points indicator (ETRP), we can identify if there is a probable reversal in this zone before the RBNZ rate decision. The triangle arrow from the ETRP signals that a possible reversal may happen in this area. However, considering the moving average, which is color-coded according to the trend strength, which is mainly green for extreme bullish, lime for bullish, silver for range, orange for bearish, and red for extreme bearish, is still indicating that the trend is still bullish. Traders who are looking for a sell signal confirmation could wait for the ETRP to change its moving average color to bearish before considering an entry.
NZDUSD range bound, with RBNZ on the horizonOn Friday, the NZDUSD traded with significant volatility as the price surged strongly to the 0.62 resistance level but failed to break above, ending the trading week at the 0.6150 price level.
Early in the trading session today, the NZDUSD is trading lower with the potential to reach the 0.61 support level.
Look for the NZDUSD to break the 0.6120 interim price level to signal further downside potential toward the 0.6070 key support level.
Watch out for the RBNZ interest rate decision on the horizon, with a 75bps rate hike expected, this could bring significant volatility to the NZDUSD.
$NZDUSD: Tight stop, big target...I think the Kiwi offers a tremendous reward to risk ratio on the short side here. The situation with persistent inflation and rising energy prices is certainly a headwind for the economy, combined with Powell's increased determination as per his last speech at Jackson Hole, has helped bears gain ground here, triggering both a daily and a weekly down trend simultaneously. The invalidation for this signal is a move back above the 0.6255 mark, in which case a short squeeze would happen. Currently, the chart signal points to a decline towards 0.5762 by October 21st, the latest.
Overall, good setup in the currency market to add to a more holistic trading portfolio (like mine). Any market that adds uncorrelated returns, is a good use of leverage/cash.
Best of luck,
Ivan Labrie.
GBPNZD GAINS AS NZD DECLINESAs China reaffirmed its commitment to its zero-corona strategy, dashed hopes for an economic revival that may increase global demand, the New Zealand currency declined below $0.59, erasing gains after a robust surge.
China has said that it will continue to impose restrictions in the interim. Naturally, that raises the possibility of a possible adjustment as markets progressively reopen this week. As a result, everything is "volatile, reactive, and globally fluid.
Officials from the Reserve Bank of New Zealand stated that, despite warning of potential downside risks to the global economy, the country's high inflation and tight labor market call for a cooling of demand. The Reserve Bank of New Zealand increased interest rates by half a percentage point in October, but markets now expect a greater increase of 75 basis points in November.
GBPNZD testing support + newsPrice is testing the support for the 4th time, such as MACD.
We can see the columns in MACDS indicator losing power, and the line crossing each other.
About candles we've a three inside up after testing the support, show us a bullish signal.
And to conclude the Reerve Bank of New Zeland says "economy will slow as rising rates curb consumption", the houses prices are still expensive; and this morning in NZ we had data about unemployment and employment, and:
Unemployment: 3,3%, higher thand expected (3,2%). They though the rate was lower than last Q, but is the same as the previous and higher than expected.
Employment: Higher than expected with a change of 1,3bp and the forecast was 0,5%
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Dont forget about yesterday:
BOE made a £838b stimulus and sold £750m of gilts
NZD higher ahead of employment reportNZD/USD is showing some strength today. In the North American session, the New Zealand dollar is trading at 0.5838, up 0.41%. Earlier today, NZD/USD rose to 0.5902, its highest level since September 21st.
New Zealand releases its Q3 employment report on Wednesday. The data is expected to reaffirm that the labour market remains robust. Employment Change is expected to rise to 0.5% (0.0% prior) and the unemployment rate is forecast to tick lower to 3.2% (3.3% prior).
The Reserve Bank of New Zealand is unlikely to be pleased if employment numbers improved in Q3, as it points to inflation remaining high. Moreover, business sentiment is soft, with businesses concerned about rising labor costs and many of them planning to raise their prices. Inflation in Q3 came in at 7.2%, and the RBNZ finds itself much further behind inflation than it had anticipated. The cash rate is currently at 3.5% and the hot inflation report has analysts projecting that the cash rate won't peak until 5.0% or even higher in early 2023. This leaves the RBNZ with little choice but to continue with oversize rate hikes, despite the spectre that high interest rates will tip the economy into a recession.
The Federal Reserve will announce its rate setting on Wednesday, with CME's Fed Watch pegging the likelihood of a 75 bp hike at 86%. This would bring the benchmark rate to 4.0%. The question on the minds of investors is what happens next? The last meeting of the year is on December 14th and the Fed is expected to begin to ease its foot off the rate pedal, likely in the form of a 50-bp hike. This will depend on economic data, especially inflation. If inflation isn't showing any signs of peaking, the Fed will have to consider another 75 bp hike.
There is resistance at 0.5906 and 0.5999
There is support at 0.5782 and 0.5689
AUD/NZD weakness as central bank policies divergeTo strip out the effects of the Fed we can take a look at the moves in AUD/NZD, both bolstered by risk-on sentiment. In this pair, the 25bps hike from the RBA is clearly seen as the bank underdelivering on its mandate to bring inflation back to its 2% target, a clear divergence from the RBNZ so far. The bank is due to meet on November 23rd and markets are suggesting we may see a 75bps hike this time around as inflation continued to tick higher in Q3.
Similar to AUD/USD, AUD/NZD saw a spike higher on the 26th of October after the Q3 CPI data was released and rate hike odds grew in favour of 50bps. But the two central banks are starting to diverge in policy and therefore the New Zealand dollar is likely to remain dominant over the coming weeks unless we see a shift in stance from either side, whether it be in form of data or commentary from officials.
The 10-year yield differential between them has also been widening which supports AUD/NZD lower and the fact that we have broken below the 200-day MA for the first time since January this year suggests the pair may continue to drop, potentially breaking below support at 1.0920.
NZD/USD tumbles despite RBNZ hikeNZD/USD started the day with gains but has reversed directions and is sharply lower in the North American session. The New Zealand dollar is trading at 0.5657, down 1.38%.
As expected, the Reserve Bank of New Zealand delivered a 0.50% hike, bringing the benchmark to 3.50%, its highest level since 2015. The RBNZ has now hiked rates at eight consecutive meetings and even discussed a super-size 0.75% increase at today's meeting.
The RBNZ has been aggressive with its rate-tightening cycle, and there's likely more to come. The rate statement noted that "core consumer inflation is too high" and the labour market remains tight, a signal that the central bank will continue to tighten until inflation has peaked. This means that the November meeting will likely bring a rate hike of 0.50% or 0.25%, depending on economic data and the inflation picture. Inflation hit 7.3% in Q2, up from 6.9 in Q1.
One of the dangers of a steep rate-tightening cycle is choking off economic growth and Moody's rating agency said after today's rate hike that a soft land was "increasingly unlikely". The RBNZ might disagree, pointing to a 1.7% gain in GDP in Q2 and a robust labour market. The economy has proven strong enough to bear sharp rate hikes and Governor Orr is looking for a peak in inflation before easing up on rates.
September was a disaster for the New Zealand dollar, which plunged a staggering 8.5% and fell to its lowest level since March 2020. NZD/USD has rebounded 2.0% in October, but the currency faces significant headwinds. The escalating conflict in Ukraine, which has seen President Putin annex 15% of Ukrainian territory, and a hawkish Federal Reserve are likely to continue weighing on the New Zealand dollar in the short term.
NZD/USD is testing support at 0.5712. Below, there is weak support at 0.5639, followed by 0.5522
There is resistance at 0.5829 and 0.5902
NZD/USD - All eyes on RBNZThe New Zealand dollar continues to rally. In the European session, NZD/USD is trading at 0.5746, up 0.43%.
The Reserve Bank of New Zealand holds a meeting on Wednesday. The RBNZ has been aggressive with its rate tightening and is expected to raise rates by 0.50%, which would bring the cash rate to 3.50%, the highest since 2015. Governor Orr has hinted that the rate cycle could be coming to a close soon, but that is still more work to do to tame inflation. In Q2, CPI rose to 7.3%, up from 6.9% in Q1. The economy has performed well, with GDP rising 1.7% in Q2, along with a strong labour market and solid wage growth. This means that Orr can continue to raise rates above 4.0% in the knowledge that the economy is strong enough to handle additional rate hikes.
September was a disaster for the New Zealand dollar, which plunged 6.5% and fell to its lowest level since March 2020. With the US dollar taking a breather, NZD/USD has rebounded this week, with gains of 2.70%. The volatility could well continue, and the New Zealand dollar is likely to face more headwinds in the short term.
First, the risk-related currency has been hit hard as risk apprehension has soared. The war in Ukraine has escalated and the energy crisis facing Western Europe could tip many countries into recession this winter. China's economy has been slowing down, which means less demand for New Zealand exports.
Second, the Federal Reserve remains in aggressive mode and is committed to curbing inflation, even if that results in a recession. US Treasury yields have been on an upswing, propelling the US dollar higher against most of the major currencies.
NZD/USD is testing support at 0.5712. Below, there is support at 0.5639
There is resistance at 0.5829 and 0.5902
#AUDNZD: Keep an eye on the basing pattern here...The weekly down trend signal in $AUDNZD expires next week, this means a potential reversal can be setting up. At the same time, the daily chart is basing and can flash a bullish signal in a day or more. I'll be watching this pair closely in the coming days, after today's close in particular. The recent bout of #NZD strength courtesy of RNBZ's hawkishness has droven the cross pair too far in my opinion and is bound to mean revert substantially, as we recover from peak pessimism when it comes to Australia and China...
Cheers,
Ivan Labrie.
NZ dollar slides below 62, retail sales nextThe New Zealand dollar continues to show volatility this week. In the North American session, NZD/USD is trading at 0.6182, down 0.48%, erasing all of Tuesday's gains.
Later today, New Zealand releases retail sales for the second quarter. The markets are expecting a strong rebound of 1.7%, after the Q1 reading of -0.5%. The release is expected to reflect pent-up consumer demand after Covid restrictions were lifted in April. A stronger-than-expected release could give the New Zealand dollar a lift.
The RBNZ will be carefully monitoring the retail sales release, as a strong reading would indicate that the economy remains strong and can continue to absorb higher interest rates. The RBNZ has been aggressive, raising rates by 50 basis points at four straight meetings. The central bank is expected to add another 50bp hike at the October meeting, which would bring the cash rate to 3.50%. Inflation has hit 7.3%, but the RBNZ is confident that it will peak soon and expects inflation to fall to 3.8% by the end of 2023. The central bank is cautiously positive about the economic outlook, predicting that the economic slowdown will not turn into a full-blown recession.
Over in the US, durable goods orders for July were a mix. The headlines reading slipped to 0.0%, down sharply from 2.2% in June and missing the estimate of 0.6%. Core durable goods was unchanged at 0.3%. The weak data did not weigh on the US dollar, unlike the case after a weak US New Home Sales release on Tuesday, which sent the US dollar broadly lower.
Investors are now shifting attention to Thursday's US Preliminary GDP for Q2. In July, the initial GDP estimate came in at -0.9%, settting off a storm of debate as to whether the US economy was in a recession after back-to-back quarters of negative growth. The debate had political overtones as well, with the White House, trying to avoid being tainted with the "R" word, went to great pains to point out that there are other definitions of a recession. The second GDP estimate is likely to come in at -0.8% or -0.9%; any other number would be a surprise and would likely result in some volatility for the US dollar.
NZD/USD faces resistance at 0.6227 and 0.6366
There is support at 0.6126 and 0.6075
New Zealand dollar slides after RBNZ hikeThe New Zealand dollar has taken a tumble today. In the European session, NZD/USD has declined by 0.88% and is trading at 0.6289. We continue to see plenty of volatility from the New Zealand dollar. Last week, the currency rose 3.33%, but has pared those gains this week and is down 2.47%.
The RBNZ dutifully raised interest rates by 0.50%, for a fourth straight time. This brings the cash rate to an even 3.00%. However, the New Zealand dollar has responded with sharp losses, as the central bank's inflation and unemployment forecasts have been revised upwards. In its monetary statement, the RBNZ said it expected inflation to start to drop from the current level of 7.3%, but said that inflation will not fall below 3% until June 2024. As well, unemployment is expected to rise to 5% in 2025. In May, the central bank projected inflation would drop under 3% in September 2023 and inflation would rise to 4.7% in 2025.
The central bank holds its next meeting in October. Governor Orr flatly ruled out any predetermination as to what the RBNZ would do. Still, short of a spectacular turnaround in inflation, odds are that the Bank will deliver another 0.50% hike, as its primary focus is to ensure that inflation does not become entrenched. There is the danger that the sharp rate tightening could cause a recession, but that is a price the RBNZ is willing to pay.
The Federal Reserve is doing its best to convey the message that inflation is far from beaten and additional rate hikes are coming. Since the surprising inflation report which showed a decline in CPI, the markets have been holding onto the idea that the Fed will reverse directions next year, which has sent the US dollar sharply lower. The Fed minutes will be released later today, and I expect the Fed to continue to drum out its hawkish stance. Will investors finally buy into the Fed's hawkish message or ignore what they don't want to hear? Stay tuned - the dollar could show some volatility after the release of the minutes.
NZD/USD is testing support at 0.6300. Below, there is support at 0.6227
There is resistance at 0.6385 and 0.6495
NZD slides, employment report nextThe New Zealand dollar has reversed directions today and recorded sharp losses. NZD/USD is trading at 0.6285, down 0.75% on the day. Risk appetite has fallen, with US Speaker of the House Nancy Pelosi's controversial trip to Taiwan sending risk appetite lower. The New Zealand dollar has followed the Aussie, which has plunged around 1.5% today. As well, NZD/USD is under pressure from NZD/JPY, which is down 1% today due to safe-haven flows to the Japanese yen.
New Zealand releases the employment report for Q2 on Wednesday. The labour market has been solid but unspectacular - in each of the last two quarters, Employment Change climbed by a negligible 0.1%, while the unemployment rate remained steady at 3.2%. Employment Change is expected to rise to 0.4% and the unemployment rate is forecast to tick lower to 3.1%. With the markets expecting only a slight change in the second quarter, I don't expect the New Zealand dollar to react unless the forecasts are wide off the mark.
The Reserve Bank of New Zealand continues to grapple with soaring inflation, which rose to 7.3% in Q2, up from 6.9% in Q1. The central bank has raised rates to 2.50%, but with inflation well above the inflation target of around 2%, rates will have to keep rising in order to reel in inflation. The RBNZ is also concerned about inflation expectations, which if left unchecked will strengthen inflation and exacerbate the Bank's efforts to curb inflation. Inflation Expectations accelerated for eight straight quarters and hit 3.29% in Q1, up from 3.27% and a 31-year high. We'll get a look at Inflation Expectations for Q2 next week, and if the current trend continues and the reading accelerates, it will put further pressure on the RBNZ to respond with a large rate hike at the August 17th meeting.
NZD/USD is putting strong pressure on support at 0.6271. Below, there is support at 0.6213
There is resistance at 0.6350 and 0.6408
$NZD KIWI - Where to next?$NZD KIWI - Where to next?
We had the FOMC, wasn't as hawkish we are at neutral rates, we had a horrible GDP and now we are in data dependent of course, is recession priced in already? Well, time will tell but regarding NZD:
Technical terms: In pennant/Bull flag a break to either direction. A break above 50 EMA - TL down we onto the bulls further in control next area of interest 1.618 areas which is a key resistance zone.
I bullish FX commodity pairs and precious metals, even a crypto! (Not Investment Advice)
TJ
NZDUSD BULLISH OUTLOOKNew Zealand's CPI rose to 7.3% from 6.9% in the first quarter. This prompts analysts to believe that RBNZ will raise the interest rate with more than anticipated in order to mitigate the roaring inflation.
This expectations will resume most likely till the RBNZ August meeting where the decision for the interest rate will be made.
Both MACD and RSI indicators are confirming this outlook. if it gets confirmed the pair might try to test its previous resistance level at 0.6365 If not, it might plumed back to its latest low of 0.60605
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