Kiwi rallied significantly against its neighbor after Reserve Bank of New Zealand Deputy Gov. Grant Spencer re-iterated on the risks of rising housing prices. Spencer spoke to the Employers and Manufacturers Association in Auckland earlier that a “monetary policy response” is likely should house prices and consumption continue to rise. This is yet another u-turn of intent from RBNZ officials. Earlier in the year, RBNZ Gov Wheeler was hawkish, until a swift u-turn in Feb saw him changing tone – suggesting that NZD is overvalued and that he is not afraid to use rate cuts to bring it down. The concern that we’ve drawn back then was exactly the same as what Spencer has indicated. Even Wheeler himself acknowledged that housing prices are going in the wrong direction when he threatened rate cuts, which will almost certainly increase loan demands and drive housing prices higher on cheaper funding. Hence it became clear that Wheeler’s threat was untenable, and market seems to agree with AUD/NZD pushing lower since Mid march.
4 Hourly Chart
With Spencer affirming the new hawkish stance today, price is able to stay below the descending channel that has been in play since Mar highs. Stochastic readings does not really tell us much beyond the fact that current downtrend is still in play. Both price and Stoch readings were able to print lower highs, though stochastic readings has been giving us higher lows marginally. This is not really significant besides hinting to us that price still have some room to go downwards despite readings being deep in Oversold region.
Stochastic readings on the daily chart shows the same, with current readings still slightly above the the previous troughs. However, overall downside bias via the daily chart is stronger compared to the 4-Hourly, with recent highs unable to takeover highs of Dec ’12. Price has also cleared the descending trendline and 1.25 round number support, with Fib retracements broken along the way. Currently the only significant Fib that remains would be the 76.4% which is the level preventing a full 100% retracement.
Fundamentally, it is important to note that AUD/NZD fell in spite of a more hawkish RBA rate decision. It seems that market has priced in and discounted the hawkish RBA outlook, while today’s reaction on Spencer’s comment suggest that a hawkish RBNZ scenario may not have been fully priced, meaning a move lower for AUD/NZD on further hawkishness of RBNZ is still possible. However, it remains to be seen if Spencer’s words echo Wheeler’s thoughts. There remains the possibility that Spencer may not be representing what the rest of RBNZ is thinking, but merely suggesting his own policy preference. Even if he and Wheeler belong to the same camp, this would represent the 2nd U-turn Wheeler has made within the past 3 months, which certainly does not bode well for his reliability. With a lower reliability, we could see RBNZ’s statements lose its influence in directional guidance moving forward.
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