Mirror mirror on the wall, who’s the most dovish of them all?
Today we have 2 Central Bank decisions. Both the Swiss National Bank and Reserve Bank of New Zealand held key rates as expected, but both Central Banks were also surprisingly dovish. RBNZ started the ball rolling (no pun intended) with Governor Wheeler explicitly saying that NZD falling is “good”, and is prepared to slash policy rates to bring NZD lower from current 10-15% overvaluation. SNB follow suit with their own cover of “whatever necessary” by Mario Draghi, saying that they are ready to buy “unlimited quantities” of foreign currencies and take further steps “if necessary”. SNB reiterated their commitment to defend 1.20 EUR/CHF floor even though price is currently a fair distance away trading above 1.23 before the announcement.
The impact is clear for all to see, with market reacting accordingly after the respective announcements. If one were to forcefully rank which Central Bank is more dovish, price actions tells us that RBNZ has stood out head and shoulder above SNB. Perhaps the key reason is that threat of immediate intervention isn’t there for SNB, with more than 300 pips buffer away from current price. Also, market has been speculating about an adjustment of floor to 1.25, and those staunch speculators will certainly be disappointed that SNB seems contented with “just” a 1.20 one. Without price hitting close to or below 1.20, it is highly unlikely that SNB will be called upon to buy their “unlimited quantities” of foreign currencies (most likely EUR), hence rendering SNB’s threat empty.
From a technical point of view, the fall post RBNZ has broken sparked off a new bearish momentum, with price aiming to break the 0.78 floor. SNB decision has only managed to push price higher towards the perimeter of Kumo, which is still weighing lower with the forward Kumo remaining bearish despite the pullback.
Daily Chart is overall bullish, though current price action seems to be on a bear cycle after failing to breach the 0.785 ceiling. Stochastic agrees with this scenario with a bearish Stoch/Signal cross and readings heading lower. However, support can be expected in the form of the rising Kumo and the upwards trendline.
Fundamentally, both Swiss and New Zealand are not enjoying the best of times for their economies. However, Swiss’s economic woes has been a common theme back in 2012 (which was the reason the 1.20 floor was erected to begin with), while New Zealand has been enjoying a relative bumper harvest. Currently, New Zealand is suffering due to the ongoing drought, while Swiss remain static, which will help to correct NZD/CHF back lower even without the threat of rate cuts.
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