Market News & Analysis
RBNZ - hold or fold and what it means for AUDNZD
Tony Sycamore November 11, 2019 3:20 PM
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.
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
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.
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.