Chart of the Day NZDUSD
NZDUSD Correction of the Correction Coming - Probable Price Path
US rates moved higher on Friday, with the 2-year Treasury yield rising 2bps to 0.16% and the 10-year yield up 4bps to 0.68%. The Fed announced that Chair Powell would deliver a speech on the economy on Wednesday night, which market participants speculate will push back against the notion that the Fed is considering negative interest rates. Futures pricing for the Fed funds effective rate at the end of the year reached as low as -0.04% on Friday morning, but ended the day back in slightly positive territory, at 0.015%. Separately, the Fed said that it would taper its US government bond buying under its QE programme for the week ahead from $8b per day to around $7b per day. It also said it would taper its purchases of mortgage bonds from $6b to $5b per day. There are still no such signs of tapering from the RBNZ, which announced on Friday that it would purchase $1.35b of government bonds in the week ahead, the fourth consecutive week it has maintained this purchase pace. The announcement triggered another sizeable move lower in New Zealand government bond yields (10 year: -7bps) and long-end swap rates. The RBNZ continues to buy faster than New Zealand Debt Management is issuing the bonds, pushing NZ yields lower relative to other markets (the spread between NZ and US 2029 maturity bonds is now negative).
All eyes are centred though on the RBNZ MPS on Wednesday and the Budget on Thursday. Look for the RBNZ to announce a big increase to its QE bond buying programme, from $30b to around $60b. The market will be watching whether the RBNZ reiterates its previous commitment to keep the OCR at 0.25% until at least March, given recent speculation that it could cut the OCR to negative before the end of the year. The government is set to announce new fiscal initiatives at the Budget and New Zealand Debt Management will update its bond programme for the coming four fiscal years, which will show a huge increase in forecast bond issuance compared to the Half-Year Economic and Fiscal Update (HYEFU) back in December.
From a technical and trading perspective, the NZDUSD has been correcting the pandemic crisi decline however recently there has been a noteworthy decline in momentum as prices tests the 100 period VWAP, with the RBNZ decision this week bears will likely use any additional upside towards .6200/50 to deploy short exposure this strategy should be rewarded as the ascending trend line contains the last leg of this phase of correction. From this .6250 area bears can reasonably expect a three wave correction to test back towards the .6000/.5900 area before bulls will likely reengage to base for a move towards the primary upside objective .6460/80
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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!