The FX market is off to an exhilarating start to Wednesday’s trading with the New Zealand dollar soaring through the charts!
Behind the Kiwi’s strength is the hawkish statement from the Reserve Bank of New Zealand (RBNZ) early this morning. The central bank took markets by surprise when it kept interest rates steady at 1.00%. Major banks widely expected that a rate cut would be announced today following the RBNZ’s aggressive decision to cut rates by 50 basis points in their last meeting. Yesterday’s inflation expectations report only added fuel to speculations when it came it lower than the previous month.
Although RBNZ Governor Adrian Orr acknowledged that inflation is still far from their 2% target, he did say that economic data from August did not compel them to add to “the already stimulatory monetary setting at this time.”
It was revealed that there was a consensus among policymakers to stand pat. The central bank, however, warned that they are “prepared to act as required” should the economy show more signs of a slowdown.
The New Zealand dollar is up over 70 pips against the US dollar trading above 0.6400, 80 pips against the yen at 69.80, and 130 pips against the Aussie at 1.0675.
On the 4-hour chart of NZDUSD, we can see that support at the rising trend line from the lows of October 1, October 16, and November 12 held perfectly. The currency pair is currently struggling to trade above 0.6400 which suggests that a retracement could be imminent. Using the Fibonacci retracement tool from yesterday’s low to 0.6414 where NZDUSD topped after the RBNZ statement, we can see that it could pull back to the 50% FIb level around 0.6370 where it previously found resistance.
If there are enough bulls in the market, we could see NZDUSD rally above 0.6450 where it established highs in November. On the other hand, if risk aversion overwhelms market investors today, we could see the currency pair drop to support around 0.6325.