Central banker chit chat and the NZD

With most of this week’s Tier 1 economic data “banana peels” out of the way, key currency pairs have been able to keep their feet and hold onto recent gains. This is despite a high probability that today’s Fed rate cut was the last of a mid-cycle adjustment, thereby confirming the thoughts outlined in yesterday’s note.

It is acknowledged that Central Bankers do talk amongst themselves regularly and with that in mind perhaps it’s no coincidence that the Federal Reserve has delivered three cuts in 2019 for a total of 75bp. The same total as our own RBA.

The tone of RBA Governor Lowe in recent communique has been more optimistic, emphasising both a "gentle turning point" in economic activity and the limited effectiveness of monetary policy at the lower bound, thereby setting the scene for an end to its easing cycle. Today’s sharp rise in building approvals supports the view a gentle recovery is in the making and that recent rate cuts are gaining traction.

Taking it a step further, the RBNZ is due to meet to discuss interest rates in just over two weeks’ time. After delivering 75bp of cuts in 2019, the market is currently 60% priced for another cut in November. Based on the recent improvement in global sentiment, a much better than expected ANZ Business survey today and emboldened by the lead of other central banks, the RBNZ may well choose to hold fire.

Should this view become consensus, it will provide the NZDUSD with the opportunity to play catch up with other currency pairs.

After falling just short of the .6450 target written about in this article https://www.cityindex.com.au/market-analysis/antipodean-fx-revival-to-continue/, the NZDUSD retreated all the way back to .6333, forming a double low in the process. After this mornings Fed cut, the NZDUSD is now eyeing trendline resistance and the September high .6440/50 area.

Should the NZDUSD break and close above .6440/50, there is room for another leg higher, initially towards .6480/.6500c and above that .6580. Stops on longs should be placed below .6330.

Source Tradingview. The figures stated areas of the 31st of October 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

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