Market Analysis

NZDUSD: Losing steam after the RBNZ interest decision

The Reserve Bank of New Zealand (RBNZ) kept unchanged the interest rate at 1.75% at its November meeting, matching analysts’ expectations. Officials highlighted that they expect to keep the interest rate at this level through 2019 and into 2020, expecting the gross domestic product (GDP) growth to increase over 2019 and pointed that trade tensions as a significant risk for sentiment. Consumer prices increased 1.9% year-on-year in the third quarter of 2018 following a 1.5% increase in the previous quarter. The print came above consensus expectations of 1.7% and was the highest rate in four quarters.

Wall Street traded in the green on Wednesday after results from the midterm elections that came nearly in line with expectations, with Democrats gaining control of the House and Republicans increasing Senate majority.

The US Dollar has staged an impressive recovery after extending losses across the board in wake of the US medium-term election results that saw the Republicans lose control of the House but strengthen its grip of the Senate. The USD index is back up near 96.000 having tested and breached rather than convincingly break below a 38.2 Fibonacci retracement level at 95.607, though whether it can reclaim its 10-day moving average around 96.30 remains to be seen. The US dollar index measures the greenback’s strength against a basket of six major currencies.

Meanwhile, the Federal Reserve starts its two-day policy meeting on Wednesday but is not expected to announce any changes to monetary policy on Thursday, ahead of a widely-anticipated rate hike in December 2018.

The Markit PMI composite rose to 54.9 in October, compared to the 54.8 registered in September and beating analyst estimates of 54.8, according to Markit Economics. The data is based on a large number of business executives in private sector manufacturing and services companies. An index level of 50.0 signals no change since the previous month, above 50.0 signals an improvement, below 50.0 a contraction. The 54.9 on the Markit PMI composite is seen as positive for the USD.

Since the beginning of 2018 until last Wednesday close, the NZDUSD remains negative with a loss of over 4.0% but began November above water with over 4.0% gain. Nonetheless, since the beginning of the week, it remains strong gaining more than 2.0% and on the daily time-frame, the currency pair closed in the green with a gain of 0.81%. Furthermore, the NZDUSD is in a recovery phase since early November.

On yesterday session, the currency pair initially fell but found enough buying pressure near the 23.6 Fibonacci retracement at 0.67241 to reverse, turning north and closed near the high of the day, in addition, managed to close above Tuesday’s high, which suggests a strong bullish momentum.

The stochastic is showing an overbought market although is still displaying a strong bullish momentum.

After making a new year-to-date low at 0.6424 in early-October, the NZDUSD began an upward correction that short-lived and turned to a sideways correction until the end of October. November started with the right foot by skyrocketing although now is approaching a daily resistance at 0.6801 where it might trigger some profit taking which can lead to a downward correction toward the 38.2 Fibonacci retracement at 0.6666.


Watch out this Week: 

On Thursday, November 08 at 19:00 GMT (14:00 PM ET) the US Federal Reserve Bank (FED) is scheduled to announce that the interest rates will remain unchanged at 2.25% as widely expected by market analysts. The FED will also release its statement regarding monetary policy. A hawkish statement may be viewed as positive for the US dollar (USD), whereas a dovish view is considered negative.


NZDUSD: Losing steam after the RBNZ interest decision

NZD/USD Daily Candlestick Chart


Written by Hugo O’Neill, External Analyst


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