AUD/USD, NZD/USD, ASX 200 rise ahead of RBNZ, US inflation: Asian Open

1-day implied volatility levels for USD/JPY, EUR/USD and NZD/USD have blown out ahead of today’s key events, which includes comments from BOJ’s governor, and RBNZ cash rate decision and the US inflation report. We also have a BOC meeting although options traders appear unconcerned, and FOMC minutes are released overnight but I doubt we’ll glean anything more than what Fed members are already publicly saying since the last Fed meeting.

With excitement brewing that several major central banks may be nearing a dovish pivot, all eyes will be fully focussed on the RBNZ today to see if they release any dovish clues. We can write off any expectations of a cut today, given their February statement stated rate needed to remain “restrictive” for “a sustained period of time”. And for what it’s worth, all 29 economists polled by Reuters expect rates to remain on hold today. The same economists favour a 25bp cut in Q3, so today’s focus is on whether any slightly dovish clues will be released in the statement, which could weigh on NZD pair and potentially drag AUD lower on hopes of the RBA following suit.

Also take note of any comments from BOJ governor Ueda later today, as any further jawboning of the Yen could see USD/JPY pull back further from its recent highs. As for now, 152 remains the glass ceiling that USD/JPY dare not touch.

The main event over the next 24 hours is of course US inflation. It always grabs a lot of attention, yet I suspect it may be one of those reports where nobody gets what they want; CPI may not be cool enough to warrant the three Fed cuts that the dot plot supposedly supports, or hot enough to materially change market pricing. But if there is to be surprise, my guess is to the upside which could support the US dollar.

• 09:50 – Japanese producer prices, bank lending
• 12:00 – RBNZ interest rate decision, statement (no change expected)
• 16:00 – BOJ Ueda speaks
• 18:00 – China outstanding loan growth, M2 money supply
• 22:30 – US inflation
• 22:30 – BOC interest rate decision, statement (no change expected)

ASX 200 technical analysis:

The daily chart shows that the ASX 200 futures market remains in its uptrend, and is more or less respecting trend support. Although its friendship it being tested more and more frequently at these highs. And with the potential for US CPI to remain elevated and Wall Street hesitant to rally ahead of key earnings reports, I remain doubtful as to whether the ASX can now simply break to a new record high. 

Today’s bias is simply to fade into moves around the 7900-7920 resistance zone and target either trend support or yesterday’s low.

AUD/USD technical analysis:

The Australian rose for a second day in line with its daily seasonality around this time of the year. Yet it is fast approaching the March high / Q3 open prices, which I suspect will provide a zone of resistance – at least initially. Should the RBNZ refrain from tinkering with their statement too much, upside risks for AUD/USD and NZD/USD remain apparent. And this brings the 0.6650 – 0.6660 resistance zone into focus for bulls, a zone which might also be vulnerable to profit taking and therefore a retracement lower. Also note that the 1-day implied volatility level for AUD/USD is just 67% of its 20-day MA, meaning options traders expect the bulk of the RBNZ action to impact NZD/USD.

NZD/USD technical analysis:

1-day implied volatility for NZD/USD is more than twice its 20-day average. NZD/USD has risen 2.3% since the April low, yet met resistance at a 50% retracement level and 200-day average on Monday. These are not easy levels to break and the market is clearly watching them, and even if they do break to the upside we also have the 50-day MA/EMA and 200-day EMA to content with, so perhaps upside potential could be limited over the near term.

In which case, the bias is to fade into any upside move to try and capture a retracement against its 2.3% rally. But we also need to factor in that April tends to be bearish for the US dollar, so unless the RBNZ surprise with a dovish meeting then I’m not looking for an oversized bearish move.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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