Chart of the Day NZDUSD
NZDUSD Testing Monthly Trendline
Expectations have built up for a more severe fallout from coronavirus and this has led the market to price in more RBNZ cuts. Economic data out of New Zealand has also suffered of late, which hasn't been any help to the risk correlated commodity currency.
The RBA cut interest rates by 25bps, taking cash rates to 0.50%, sending the message that they will ease further if required as risks remain to the downside due to uncertainty around how large and long the disruptions to the global economy will be from the coronavirus. This comes ahead of a G7 teleconference today to discuss their response to the virus outbreak, led by Mnuchin, although a draft statement does not mention anything in regards to coordinated rate cuts, according to newswires. ECB President Lagarde, the latest central bank head to suggest the ECB stands ready to act if needed.
Looking at the monetary space available, the Fed will have to undertake most of the heavy lifting to the detriment of the USD. Another central bank with substantial ammunition is the BoC with a policy rate still at 1.75%. Central banks like RBA (already cut 25bp), BoE and RBNZ are getting close to the zero bound may only undertake limited 25bps rate cuts. ECB, SNB and BoJ are likely to be the laggards given their deposit rates are at -0.50%, -0.75% and -0.10% already. That said, commitment to expand corporate bond purchases or extending liquidity via repo operations can be offered.
From a technical & trading perspective the NZDUSD is sitting on a monthly trendline, price is attempting to base here a close today through the near term volume weighted average price would flip the daily chart bullish allowing for a recovery attempt to initially test the descending trendline resistance sighted towards the .6400 handle, it is likely seller will remerge here to force a retest of the current lows as these hold or are marginally exceeded then quickly recovered there is a window for a more meaningful correction to develop to challenge the pivotal .6500 handle.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!