RBNZ - hold or fold and what it means for AUDNZD
Tony Sycamore November 11, 2019 12:20 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.
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.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.