NZ dollar takes flight as RBNZ strike a hawkish tone (NZD/USD, AUD/NZD)

Whilst the RBNZ were expected to hold, their statement struck a hawkish tone by stating that “inflation remains too high”. And with traders front-loading a weak CPI print for the US later this week it has catapulted the New Zealand dollar higher.

The consensus was firmly behind the RBNZ to hold their cash rate at 5.5% and for the meeting to be a non event. Yet the opening paragraph was quick to tip its hat to inflation remaining “too high”. And the speed at which NZD was catapulted to the top of the board shows that traders were ‘caught short’ and on the wrong side of the market.

In recent weeks, we have seen the 1-year OIS fall from 5.85% to around 5.5%, as a peak rate was assumed to be a given. However, the RBNZ is not one to mince its words when it comes to monetary policy, and it is not one to shy away from a hike or bow down to political pressures, unlike one of its key trading partners may have done over the years. So, if economic data picks up heading into the February meeting, then hike expectations will surely rise and take NZD higher with it.

NZD/USD technical analysis:

However, I am conscious that we’re heading towards a key US inflation report and that NZD has already had a strong run. Bets are being placed against the US dollar on the assumption of a soft inflation print, but what if these traders assume wrong? This could leave the US dollar to a bout of strength near the end of the weak if US inflation comes in hot. And that could knock a dent in sentiment and weigh on risk assets such as indices, AUD and NZD.

Furthermore, today’s high has stalled near a HVN (high volume node) from the prior decline, and the 8-day ROC (rate of change) is approaching levels usually associated with turning points. Therefore I would be cautious at these highs if bullish as we have surely seen the bulk of the move, and that could leave NZD/USD vulnerable to a retracement should towards its 200-day average / 61c handle ahead of its next leg higher.

AUD/NZD technical analysis (daily chart):

The combination of a soft Australian inflation report and hawkish RBNZ tone saw AUD/NZD cut through its 200-day average like knife through butter. Currently ~0.8% lower on the day, it is its worst day in over three months and shows the potential to extend its decline over the coming week/s.

The daily chart shows that the cross has carved out several sideways ranges this year, with the bulk of recent action being confined the 1.06 – 1.09 range. And as we saw a false break above 1.09 at the beginning of the month followed by a lower high and break beneath its 200-day average, I suspect a move back down to the 1.06 range lows could now be on the cards.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.