NZD/USD rallied during midday Asian morning due to RBNZ Governor Graeme Wheeler said that policy interest rates will need to be higher than current forecasts if new tightening measures fail to curtail the housing market growth. In a statement published on the RBNZ website today, Wheeler reiterated that the Central Bank expects to hike rates by 2% between 2014 – 2016, but “larger increases in the official cash rate would be required” if loan-to-value speed limit is unable to slow inflation in house prices down.
Beyond New Zealand shores, Chinese Non-Manufacturing PMI rose to a 6 month high, coming in at 55.4 for the month of September. The mere suggestion that Chinese economy is actually growing fueled further gains in NZD/USD, sending price up to a high of 0.834 once again.
2 Hourly Chart
However, the strong resistance continue to hold, opening up 0.83 round figure as the immediate target. A breach of this level would open up 0.827 and the strong support of 0.8215 if 0.827 is broken as well. Stochastic also favors downside movements for now with readings pushing lower from the Oversold region. However, as the Stoch curve is tapering flatter now, there is a chance that we could still see a rebound off 0.80 higher, and hence traders should wait for a break of 0.83 coupled with Stoch curve pushing below 80.0 for strong bearish conviction.
Prices is stuck in a no man’s land between 0.82 – 0.85 where there isn’t clarity on direction. Stochastic readings suggest that the next move should be a bearish pullback but the signal has not been formed yet, hence we should not automatically assume that it will come to pass when there is still uncertainty in terms of directional movements (at least from a technical perspective).
Things are a little bit more clear cut on the fundamentals. On one hand we have Kiwi dollar which has decent economic fundamentals with RBNZ dying to limit inflation risk, on the other we have USD that is slightly weakening due to the Debt Ceiling fiasco which threatens US’s credit worthiness and hence the value of USD which is a fiat currency (e.g. not Gold backed). As such short-term fundamental pressure is definitely to the upside. However, long term fundamentals is mixed, as US is expected to come out of this Debt Ceiling crisis unscathed just like 2011. Thus, the focus will eventually fall back on QE Tapering, which will be bullish for USD. As such, it is also highly uncertain how far NZD/USD can run higher before USD strength starts to influence direction again. Therefore, caution is definitely the word of the month for NZD/USD, and once again traders who wish to partake in the RBNZ rate hike play should seek other currencies that has lower volatility and no major event risks upcoming in the next few months.
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