It’s Kiwi day and we are expecting the Producer Price Index (PPI) to come out positive at 10:45 PM GMT.
Here are 3 reasons why Kiwi (forex geek name for New Zealand Dollar) might be reversing from the lows in the coming days
1- RBNZ currency intervention is no longer likely
In an interview with Bloomberg New Zealand Finance Minister Bill English said is trading at sustainable levels. He added that the recent Kiwi depreciation has been positive for exporters, boosting their productivity and competitiveness.
He said the Kiwis are pretty comfortable with the levels so we probably shouldn’t expect them to intervene that market any time soon
2- Interest Rates Could Stay the Same
New Zealand’s central bank signaled last month it will keep interest rates on hold for an extended period as inflation slows and the currency remains unjustifiably high.
English said New Zealand’s budget is on track with spending under control and revenues rising, though he was unsure whether they had increased as fast as forecast. He described New Zealand as being in a “sound fiscal position” and that inflationary pressures might pick up, as wage growth could be seen later on.
3- There is a Double Bottom on the Chart
On the daily NZD/USD dance floor, the pair seems to have formed a bullish reversal Double Bottom candlestick pattern after breaking above the 23% fibonacci level and teasing the lower band of the Ichimoku cloud. The RSI is heading up above the neutrality area and a confirmation above the Double Bottom’s neckline at 0.80 could open doors for more up-moves with 38% Fibonacci level at 0.81 as first alternative target. But the pair’s fate also largely depends on Ms. USA as well.
The correction we saw on Sunday night in the US Dollar seemed very short lived as it got out of the blocks on Friday night and reversed all of its losses from the previous Asian session. The currency continues to win the favor of investors as it is deemed likely the Fed will be the first to raise rates. This will be put under close scrutiny today when we see the notes from the Fed’s last meeting, but in the meantime the market is happier holding dollars than anything else.
Euro Avoided Recession
Europe avoided the same fate as Asia yesterday, by shrugging off the news that Japan had entered into a recession. Stock markets in Europe flashed green throughout the session, with the Spanish leading the charge with a move for the IBEX of more than 1.5%.
ECB member Yves Mersch threw out a left field idea in a speech yesterday, saying that the ECB could buy gold, shares and exchange traded funds (ETFs) in a bid to boost growth and spur inflation. Mr Mersch is known to sit at the more conservative end of the board room table, so words like this are quite a surprise. However, he does balance his argument somewhat by saying the ECB can expand its balance sheet, but does not have the mandate to increase the risks that it takes. The Telegraph, has more.
An interesting story on Ukraine this morning, from the FT. Apparently almost 10% of their entire bond market is held by one investment fund, Franklin Templeton. The US fund manager will have seen the value of these bonds plunge to record lows in the last few weeks and, should Ukraine face a restructure, stands to lose an awful lot. The bond manager behind the fund had previously made a fortune buying Irish debt during their crisis, but could have backed the wrong horse as Ukraine continues to deteriorate past the point of being rescued with the current promise of IMF bailout monies.
HSBC’s chief analyst, speaking to the Telegraph, says not to expect a UK rate rise until 2016 now. He forecasts that 2015 GDP growth will be half a percent lower than the BoE’s forecasts, at 2.4%, while inflation is likely to dip below 1% – something that Mark carney also believes is more likely than not. Barclays yesterday also pushed back their Sterling rate rise prediction from Q1 2015 to Q3 2015, citing exactly the same reasons. These forecast alterations from major UK clearing banks certainly don’t help Sterling’s cause.
Aussie – Japan Worries
In Australia, the Reserve Bank are worried that actions in Japan may hold the Aussie dollar at higher levels than they’d like. The RBA are already vocal about the Aussie being too strong versus fundamentals, but now fear that diversification by Japanese pension funds could well see them buying Australian bonds in a bid to reach a much higher yield, which in turn could hamper Australia’s own economic progress if this does have a marked impact on the currency. Meanwhile Credit Suisse have said that they think the RBA need to cut rates to below 2% in order to boost confidence and to get ahead of falling inflation expectations.
Overnight, Japan’s Sunday sell-off didn’t last long. After news of the recession hit on Sunday night we saw the market have the biggest fall since August. Overnight however it has all but entirely reversed those losses as the talk now turns away from recession and on to stimulus. As well as a likely shelving of the next sales tax increase, Shinzo Abe is also weighing up a further three trillion Yen ($26bn) in stimulus.
BOJ policymakers seem to have decided to take it easy this time on rate statement. However there is increased support for monetary easing as there was a 8-1 vote in favor of easing. For majority of the policymakers, the recent GDP contraction that put the Japan back in recession was a wake-up call to take aggressive action. However, they still believe that the economy continues to recover moderately and that the negative effect of the April sales tax hike is starting to fade.
Mr. Kuroda remains hopeful about the economy despite the recession news and said “Companies are maintaining their upbeat investment stance against the background of robust profits.” Kuroda added “A positive mechanism of income and expenditure remains in place for both households and companies.”
As for inflation, BOJ policymakers acknowledged that price pressures are still weakening and that their latest easing decision is geared at bringing annual CPI closer to target.
Lastly, governor Kuroda doesn’t seem to agree with Prime Minister Abe’s decision to delay the next sales tax hike in order to give the consumer sector time to recover and contribute more to overall economic growth.
“I understand that whether to raise the sales tax is something the government and parliament decides, taking into account economic and other conditions. Speaking in general terms, it’s important for Japan as a nation to maintain market trust in its finances,” explained the BOJ head. After all, the country’s public deficit continues to grow and the government could use another sales tax increase to shore up its finances.
There is positivity among many investors that even if Japan delays the tax hike, the economy is still too weak and therefore we could see BOJ ease next year.
Today we look at the UK and US inflation pictures, as well as German economic sentiment. There are a reasonable amount of central bank speakers throughout the day too, so price action might not be so contained as yesterday.
Intraday Forex Technical Levels
Invest Diva Likes: Long positions above 1.2563 with targets at 1.2624 and 1.2686 in extension.
If Pair Goes Nuts: Below 1.2563 look for further downside towards 1.2487 and 1.2363.
What’s up on the Forex Dance Floor: The pair continues to move up and reached our bullish target at the 38% Fibonacci level at 1.25632 above the Ichimoku’s cloud. The RSI is moving above the neutrality area.
Supports and Resistances
1.2563 Pivot Point
Invest Diva Likes: Short positions below 0.8635 with targets at 0.8555 and 0.8472 in extention.
If Pair Goes Nuts:. Above 0.8635 look for further upside towards 0.8684 and 0.8724.
What’s up on the Forex Dance Floor: The pair reached our bearish target and 23% Fibonacci level at 0.8635 and broke below the Ichimoku’s cloud with the RSI below the neutrality area. Market sentiment of one of the largest international brokers shows that 69% of traders are long the pair and the combination of the technicals and current sentiment gives a further bearish bias.
Supports and Resistances
0.8635 Pivot point
USD/CHF 4-hour: Reaching 50% Fibonacci
Invest Diva Likes: Short positions below 0.9592 with targets at 0.9548 and 0.9503 in extension
If Pair Goes Nuts: Above 0.9592 Look for further drops with targets at 0.9648 and 0.9687 in extension.
What’s up on the Forex Dance Floor: The pair broke below the 38% Fibonacci level at 0.9592 below the Ichimoku’s cloud. The RSI is flat below the neutrality area.
Supports and Resistances
0.9592 Pivot Point
USD/CAD 4-hour: Confirming double bottom pattern.
Invest Diva Likes: Long positions above 1.1317 with targets at 1.1372 and 1.1463 in extension.
If Pair Goes Nuts: Below 1.1317 look for further downside towards 1.1272 and 1.1226.
What’s up on the Forex Dance Floor: The pair broke above the neckline at the 38% Fibonacci level and confirmed the double bottom chart pattern, as it entering the Ichimoku’s cloud. The RSI is heading above the neutrality area.
Supports and Resistances
1.1317 Pivot point