Trade view /
11 October 2016 at 1:04 GMT
A couple of weeks ago the probability of a rate cut by the Reserve Bank of New Zealand
at its next policy review on November 10 was 80%. Since then the odds have drifted down to 65% and, counter-intuitively, NZDUSD
has declined in tandem. A stronger US dollar
has been one factor, the other is that the New Zealand economy seems to be in fine shape, calling into question whether a rate cut is needed now, or at all.
Ahead of the RBNZ meeting, next week the third-quarter inflation report will be released, with economists predicting an annual rate close to zero. If the CPI number does meet expectations, the odds of a rate cut will rise again, mainly because in its last policy review the central bank said a cut “will be needed” to revive inflation via a lower exchange rate and hence higher import prices.
On the other side of the cross, the minutes of the September 21 FOMC
meeting will be released on Wednesday and US Federal Reserve
Chair Janet Yellen
gives a speech on Friday. There were three dissenters at the Fed meeting and the minutes will tell us how close they were to convincing the other seven committee members to pull the trigger then and there rather than wait until December.
Management and risk description
I am still interpreting the Kiwi to have completed a “Double Three” corrective structure on last month’s 0.7485 high (refer daily chart below). Also, from a classical charting standpoint, the Kiwi displays a completed Head and Shoulders with a downside objective of 0.6960 (see daily chart).
In the short term, resistance at 0.7185/0.7200 probably now caps with the next decline targeting 0.7060, enroute to 0.6985/0.6950.
Entry: Today, the Kiwi is seen as a sell about 0.7155 (directly below 0.7100 cancels, as not prepared to chase the market lower).
Stop: 0.7203 initially.
Time horizon: Allow at least several days.
NZDUSD daily chart (click to expand)
NZDUSD weekly chart (click to expand)
Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more
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— Edited by Susan McDonald
Non-independent investment research disclaimer applies. Read more