Within the next 24 hours, both the US FED and Kiwi’s RBNZ will be making scheduled announcements regarding their respective monetary policy and interest rates decisions. The Fed is expected to keep current interest rates and continue with their “QE Infinity” policy. RBNZ on the other hand has good reasons and scope to cut its relatively expensive key rates, but market appears to believe that RBNZ will not slash rates this time round, with Overnight Index Swaps pricing in a almost zero likelihood of a rate cut.
With both Central Banks expected to hold rates, initial reaction should be bullish for the respective currency (Fed’s announcement comes before RBNZ). However strong follow through is generally not present whenever Central Bank performs to market’s expectation. Instead, we could simply see more noise being added on our charts based on the rates announcement alone. What is of more interest to the market, and could direct the future direction of this currency pair would be the accompanying statements showing both Central Banks’ intent in 2013.
In this regard, Fed has fired the first salvo with its latest meeting minutes hinting at stopping QE3 some time in 2013 or 2014. This sudden change of hawkishness shocked market which pushed USD higher. Though we’ve seen prices slowly or have given up the USD gains entirely, overall tone for USD remain upbeat since then.
What about NZD? RBNZ’s new Governor Wheeler has been hawkish and mentioned last year that rate cut or currency intervention would not be considered in the near term. Well, that was back in November and New Zealand’s economy hasn’t really been a bed of roses. Furthermore, a strong NZD/USD is not what the net exporting country wants and that could help tilt RBNZ to be slightly more dovish in 2013.
Resistance on the weekly chart is preventing price from heading towards 0.885, while a move lower could lead us to the rising trendline below, with 0.785 providing interim support. In order for us to see such strong negativity in NZD, RBNZ must show dovish guidance in its first meeting statement of 2013. Failure to do so does not mean that NZD/USD will not fall, but bears may find it harder to push lower with a myriad of interim supports visible between 0.785 to 0.835. Certainly they may not be as strong as current 0.846 resistance, but nonetheless tricky to breakthrough in one clean swoop.
Support of 0.835 appears to hold for now. Bulls will be glad to see that the drop to 0.828 was quickly recovered within the day, giving us a strong bullish bias. A pro-USD FOMC release could still send price below 0.835, but bulls should start to worry if a pro-NZD announcement fails to bring it back up again.
Hourly chart shows price failing to hit above 0.8400, and currently sitting on the 50% Fib retracement. Relevance of Fib here may be suspect due to price failing to respect the lines when it went down on 26th and went up on 29th. Hence, the lines merely provide guidance for any shorter-term support/resistance should both FOMC and RBNZ news failed to move market significantly. Stochastic is approaching oversold region pretty soon, showing the overall short-term bullishness since the recovery from the 0.828 low. Short-term bullishness should still be regarded as in-force should 0.835 holds, while the slightly longer term decline will be in play if 0.835 is finally broken.