NZD/USD – Hawkish RBNZ Send Kiwi Soaring

Kiwi dollar rallied strongly following the Reserve Bank of New Zealand (RBNZ) latest rate decision earlier. Prices pushed up not because RBNZ raised rate, but because Governor Graeme Wheeler said that the policy rate is likely to be increased in 2014. This is the most direct hawkish/tightening signal that we’ve seen from a G20 Central Bank, giving NZD long-term positive bias against all majors bar USD (due to Fed tapering). On the issue of exchange rate,  Wheeler wants to see a weaker NZD moving forward, but he must have known that making hawkish statements about monetary policy will actually drive NZD higher, not lower. Hence it is strange that Wheeler would want to undermine his own objective.

Perhaps Wheeler has bigger issues to handle. Housing market in New Zealand continue to roar higher despite cooling measures. By stating that rates will go up higher, Wheeler must be hoping that prospective buyers will reconsider and help to ease off buying pressure. Certainly the housing issue is a timed bomb with a much shorter fuse compared to the rising NZD. Furthermore, NZD is lower on a YTD basis, and hence the pressure to drive NZD lower is not immediately present. This is evident from the fact that RBNZ has actually bought NZD net in July despite saying that they are actively selling NZD to drive prices down.

With commodities prices driven higher globally, Wheeler and Finance Minister English will be more comfortable with NZD/USD being slightly higher than their desired 0.785 level. However, should international monetary flows start to enter New Zealand once more seeking higher carry, it is possible that a revision of the 2014 rate hike outlook may need to be adjusted. Do not simply assume that NZD/USD will continue higher indefinitely due to rate expectations due to this. Furthermore, with the Fed seeking to end QE in 2014, we may actually see a net off effect where NZD/USD may end up flat or perhaps lower once again if RBNZ make good of their promise to sell NZD when the trend is down. Traders who want to play the rate differential may wish to seek other crosses to avoid volatility of USD moving forward.

Hourly Chart

From a technical perspective, it is interesting to see prices unable to hit Channel Top before pulling lower. Certainly the uptrend may not be over yet, and we could still see prices hitting Channel Top once again before tagging Channel Bottom, but the likelihood is lower considering that current price is actually lower than the post RBNZ announcement immediate rally, suggesting that bullish momentum from the news may have faded. Stochastic readings agree with a bearish move as well, with Stoch lines currently below the 80.0 mark and giving us a bearish cycle signal.

However, even if price does push lower and tag Channel Bottom, current uptrend will remain intact as Channel Bottom is already higher than the 0.808 /809 ceiling, which is also the level pre RBNZ announcement, thus not invalidating current breakout and increasing the chances of a bullish push towards Channel Top subsequently.

Weekly Chart

The 0.808 level is also key on the Weekly Chart as it is the current Channel Top level. By trading beneath it we could potentially see price pushing sharply lower towards the Channel Bottom on the Weekly Chart. Stochastic readings agree with a bullish move but that didn’t stop prices from pushing back lower sharply in previous weeks. Hence traders should continue to keep watch as huge volatility has been spotted around here previously.

More Links:
EUR/USD – Pushes up to Two Week High above 1.33
AUD/USD – Moves to Highest Level since June near 0.9350
GBP/USD – Surges to Seven Month High above 1.58

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