The Reserve Bank of New Zealand Governor Wheeler stated that the NZD is overvalued in his address to the press Today, stating that he is willing to intervene to bring NZD lower if needed. This is a surprising dovish turn from what we’ve been hearing this week. Prime Minister Keys and Finance Minister English have came on record to publicly support a stronger NZD, stating the benefits a strong NZD brings for consumers as import costs decrease. This, together from the hawkish RBNZ statement earlier this month assured traders and speculators alike that a rate cut is not even on the table for discussion. Now, Wheeler has done a 180 degrees turn around and say that he is willing to use the benchmark rate as a tool to lower NZD, essentially alluding to a rate cut down the road. Interestingly, there are unconfirmed reports that RBNZ has been participating in market intervention by selling NZD/USD above 0.845 for the past few months, so it seems that RBNZ was never truly comfortable with a high NZD, and it is only the failure of keeping NZD down that Wheeler has been forced to suggest rate cuts.
8 Hourly Chart
NZD collapsed as expected on such a surprise turn. EUR/NZD is one of the biggest benefactor of Wheeler comments as price was sitting just above 1.58 support/resistance with attempts to move above 1.58 foiled time and time again. With this rally, bulls are firmly back on track to test Channel Top, with 1.60 acting as interim resistance which may keep bulls at bay. Stochastic is suggesting that price should be able to break 1.60 with readings still only around 50.0 despite the strong 150 pips rally, giving room for more rallies to come. A potential outcome would be for price to break 1.60 before the eventual pullback towards 1.60 before testing for Channel top ultimately.
Weekly Chart is still on NZD side though. Fundamentally it is hard to see Euro-Zone’s financials doing better than New Zealand’s within the next 1-2 years. Also, interest rate differentials will still stay on NZD’s advantage despite the threat of rate cuts. As such, a long term bearish outlook for EUR/NZD has not change, and it is similarly reflected via the technicals. Stoch readings are suggesting a push below and Fib retracement may provide further resistance against rallies. Bulls may cling on to the fact that price has broken away from the upper wedge but that in itself has failed to establish higher highs in this downtrend.
With Wheeler being flip floppy, his statements will eventually be discounted by the market heavily if such tendencies continue. If that happens, the RBNZ Governor may lose influence over long-term trends but nonetheless still add in short-term volatility in the market whenever he speaks.
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