In a speech aptly titled ‘Monetary Policy Changes in Turbulent Times’, the Reserve Bank of New Zealand’s Governor Graeme Wheeler announced that they do not see a need for rapid easing, while adding that such a move would be unsustainable and further inflame the property market. The speech, coming after the RBNZ cut rates and hinted that it will wait to reassess the need for another rate cut, was surely disappointing to the market and sparked a bullish momentum on the NZDUSD pair, which gained around 50 pips.
Governor Wheeler’s speech was also extremely balanced and largely endorsed the current market pricing. He was also keen to highlight that the bank is not advocating inaction and that it will change policy settings if any risks warrant it. While the hurdle for a September rate cut is high, there is still a chance that one may come before the end of the year. With this in mind, the market quickly capped the bullish move circa 0.7325 after the speech.
Fundamental and Monetary Pricing
The US and New Zealand are visibly pursuing divergent policies. While the RBNZ recently cut rates, the US Federal Reserve hiked its rates a couple of months ago and currently, its members (with voting rights) are giving hawkish statements at every opportunity. This makes the NZDUSD a clear long term sell.
Recently, save from Monday, the US dollar (USD) has been trending lower as the market was flooded with negative data from the country. This has changed as the US released good employment numbers while some Fed members, notably Vice Chair Fischer, gave hawkish statements. As the market awaits the Jackson Hole symposium and Janet Yellen’s speech on Friday, the US dollar will surely be well supported till then.
Until the slight bullish movement this week, the NZD has largely been trading sideways. But the market will be keen on the value of the Australian dollar (AUD) against the NZD (AUDNZD). The AUDNZD has been trending lower for more than two weeks, and bearing in mind that a strong currency was the major reason rates were lower earlier this month, there is every reason to so suggest that the RBNZ might intervene sooner or later despite the reluctant stance today.
The Technical Picture
The currency pair is slightly trending higher this week but faces two major resistance areas: at 0.7325 and this month’s high at 0.7340. But with the move lacking any real momentum, the higher prices might be a good opportunity to sell the pair with the immediate target being 0.7164 (50-day moving average).
Investors can trade this currency pair with ease on the GSI Markets trading platform.
Important Note: Any information disclosed in this daily market analysis is gathered for informative purposes only, and should not be considered as an advice, recommendation or suggestion by the publisher.