All Central Banks are equal, but some Central Banks are more equal than others.
Case in point, Reserve Bank of New Zealand has indicated that they will be raising rates between 2014 to early 2016, but that did not spur NZD/USD higher even though NZD received further boost last week with a stronger than expected Q3 GDP growth of 1.4%. Instead, market choose to focus more on the Fed taper, sending NZD/USD to a low of 0.815 after the US Central Bank announced its decision to shave the current QE monthly purchase by $10 billion, a “token” gesture by Bernanke considering that the rest of the hawkish FOMC members were calling for a $20 Billion cut. The Fed did mention that more cuts will follow in the future, but Bernanke was much more coy about when and how the cuts will come, and is much less open compared to RBNZ’s Gov Wheeler who has committed to a total of 2.25% worth of rate hike. Market’s bias for a stronger USD is so tremendous right now that one suspect that NZD/USD may still continue lower even if RBNZ hike rates right now.
Then again, market’s obvious favoritism towards Fed over RBNZ’s respective policy moves is understandable. USD is much more circulated and US rates much more watched than NZD, and the sheer difference in balance sheet between the 2 Central Banks means that Fed’s policy will impact global economy much more than RBNZ. Hence, we should not be surprise that USD is gaining against NZD even though the case of a stronger USD is actually weaker than NZD.
What this means is that we could see continued bearish pressure in NZD/USD. Currently we are trading below the soft support of 0.8174, with pullback seen in the past hour unable overcome the support turned resistance. This opens up a move towards 0.815, a notion that is seconded by Stochastic with its bearish cycle still continuing. However, given that Stochastic readings are close to Oversold region, it is unlikely that price will be able to breach 0.815 and push further especially since trading volume in the final few days of 2013 will be low and highly improbable that follow-through will be strong. Even if there is follow-through, there is the danger that this slide in low volume environment may not be a true reflection of market sentiment, and the risk of a strong pullback is there when proper service resume in Jan 2014.
Bearish pressure in Weekly Chart is strong as well, with price currently testing the rising trendline. However, similar to Short-Term chart, Stochastic readings are close to Oversold, and it is likely that price will find support around 0.81 even if prices manage to break the rising trendline. Traders expecting to see bearish momentum picking up may end up hugely disappointed. That doesn’t mean price will not be able to break 0.81 in the future though. Should the market continue to favor Fed’s tapering action over RBNZ’s rate hikes, we could see bearish service resuming in early 2014 especially if the rebound off 0.81 fail to break above the descending trendline.