Market News & Analysis
RBNZ surprise again
Tony Sycamore February 12, 2020 11:30 AM
As universally expected, the RBNZ kept its overnight cash rate on hold today at 1.00%, an acknowledgment to the run of better domestic data of late including GDP, inflation, unemployment, wages growth as well as the improvement in business surveys and the positive impact of upcoming fiscal stimulus in an election year.
A polite hat tip as well to the uncertainties around the coronavirus. While there have been no reported cases of the virus in New Zealand, China’s ports have been impacted, disrupting the handling of New Zealand’s key dairy exports as has demand for tourism and education services. This uncertainty is reflected in the paragraph below from the accompanying statement.
“We assume the overall economic impact of the coronavirus outbreak in New Zealand will be of a short duration, with most of the impacts in the first half of 2020. Nevertheless, some sectors are being significantly affected. There is a risk that the impact will be larger and more persistent”
Despite the downside risks the virus presents, the RBNZ felt confident enough to signal that rates are likely to remain on hold at 1.00% for the remainder of 2020, disappointing the market who were looking for explicit dovish guidance. In response to this, the NZDUSD has rallied from .6410 pre the announcement to a high near .6465 at the time of writing.
Technically the NZDUSD chart started the year as one of our favorites. After a strong rally during the last weeks of 2019, the NZDUSD tagged perfectly the monthly downtrend resistance at .6755 coming from the 2014, 8836 high. Our expectation from here was for an orderly pullback in the vicinity of -3%. The emergence of the virus resulted in a much deeper pullback than expected.
However, the strong rebound from yesterday’s .6378 low suggests the NZDUSD can test the resistance from the 200 day moving average at .6500c with a break above here opening the way for a move towards .6570. Thereby recovering the majority of the losses that followed the emergence of the virus without threating our overarching view of a stronger U.S. dollar, particularly against the negative yielding EURUSD.
Source Tradingview. The figures stated areas of the 12th of February 2020. 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
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.