Trading the News: Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
The Reserve Bank of New Zealand (RBNZ) interest rate decision may curb the recent advance in NZD/USD as the central bank is widely expected to keep the official cash rate (OCR) at the record-low of 1.75% in November.
It seems as though the RBNZ will stick to the current script at its last meeting for 2018 as officials pledge to ‘keep the OCR at an expansionary level for a considerable period,’ and Governor Adrian Orr & Co. may continue to strike a dovish forward-guidance in 2019 as ‘trade tensions remain in some major economies, increasing the risk that ongoing increases in trade barriers could undermine global growth.’
As a result, more of the same from the RBNZ may drag on the New Zealand dollar, but signs of strong job/wage growth may push the central bank to soften its dovish tone amid ‘early signs of core inflation rising towards the mid-point of the target.’ With that said, a material shift in monetary policy outlook may ultimately fuel the recent advance in NZD/USD as it boosts bets for an RBNZ rate-hike in 2019. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
Impact that RBNZ rate decision has had on NZD/USD during the previous meeting
(1 Hour post event )
(End of Day post event)
09/26/2018 21:00:00 GMT
September 2018 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
NZD/USD 5-Minute Chart
The Reserve Bank of New Zealand (RBNZ) kept the official cash rate (OCR) at the record-low of 1.75% in September and it seems as though the central bank is in no rush to alter the monetary policy outlook as officials ‘expect to keep the OCR at this level through 2019 and into 2020.’ It seems as though the RBNZ will keep the door open to further support the economy as ‘consumer price inflation remains below the 2 percent mid-point of our target,’ and the central bank may continue to strike a dovish tone next year ‘downside risks to the growth outlook remain.’
More of the same from the RBNZ sparked a mixed reaction in the New Zealand dollar, with NZD/USD quickly pulling back from the 0.6680 region to close the day at 0.6611. Learn more with the DailyFX Advanced Guide for Trading the News.
NZD/USD Daily Chart
- Keep in mind, the broader outlook for NZD/USD is no longer bearish as both price and the Relative Strength Index (RSI) break out of the bearish formations from earlier this year, with the exchange rate at risk of extending the series of higher highs & lows from earlier this week as the bullish momentum appears to be gathering pace.
- Will closely watch the RSI as it pushes into overbought territory for the first time since the start of the year, with the oscillator warning of a larger correction in the exchange rate as long as it holds above 70.
- Need a close above the 0.6780 (100% expansion) to 0.6790 (50% expansion) area to open up the Fibonacci overlap around 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion), with the next region of interest coming in around 0.6930 (23.6% expansion) to 0.6960 (38.2% retracement).
Additional Trading Resources
New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.
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— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.
Is Gold Posed to Lose its Luster?
GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL
- Gold’s recent bullish breakout may come under pressure despite strong safe-haven demand
- A strong US Dollar notching year-to-date highs to limit further advances in gold
- Prospect of a Federal Reserve rate hike pause could shoot the precious metal higher
GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL
Over the last 5 days of trading, XAUUSD declined 0.72% as investors anxious over slowing global growth sent the US Dollar higher. Although risk-off sentiment should send the precious metal higher, gains in the Greenback overpowered bullish bids for gold. A higher US Dollar makes purchasing gold denominated in America’s currency relatively more expensive thus limiting upside.
Looking to next week, focus will shift to the Federal Reserve as markets await the highly anticipated decision by the central bank’s Federal Open Markets Committee on monetary policy. Markets are currently pricing a 77 percent chance that the Fed will raise its benchmark policy interest rate for the fourth time this year according to the futures market implied probability.
In general, Gold has an inverse relationship with interest rates due to the precious metal not yielding any cash flows like debt instruments. Higher rates result in weakened demand for the commodity as alternative assets such as US Treasuries provide a higher rate of return. If the Fed surprises markets and pauses next week or makes any material downward change to the Fed’s dot-plot, gold could ascend quickly on back of lower future interest rate expectations.
Eyes will also closely watch for the release of several key economic indicators out of America next week. If actual results miss expectations, risk-off sentiment should continue and further boost demand for gold. However, fears over a slowing global economy will incite further rotation of capital from stocks to bonds with investors flocking to the safety of US Treasuries.
For a list of global economic events and data releases, check out our real-time Economic Calendar.
As international buying of Uncle Sam’s bonds increases, foreigners must convert their currency into US Dollars. This drives up demand for the Greenback which becomes a headwind for gains in gold due to the inverse relationship between the two assets.
A third key driver to take note of that will determine gold’s next move higher or lower will be the performance of the Chinese Yuan. As the damaged Asian economy continues to experience downward pressure amid worsening economic data due to the ongoing trade war with the United States, the Dollar may appreciate further against its Chinese counterpart.
The importance of USDCNY to gold is seen in their strong negative correlation. Trade talks between the world’s largest economic powerhouses will largely drive returns for the currencies with the CNY benefiting from any progress President Xi can make with President Trump towards de-escalation tension or reaching a deal.
Due to the mixed event risks and waning bullish technical indicators, the forecast for XAU will be neutral over the week of December 17. Take a look at client sentiment for insight on client positioning and trader bearish or bullish biases.
–Written by Rich Dvorak, Junior Analyst for DailyFX
–Follow Rich on Twitter for real time market updates @RichDvorakFX
Other Weekly Fundamental Forecasts:
Euro Shorts in Charge on Tri-break
EUR/USD Technical Highlights:
- Triangle finally broke, has Euro rolling downhill
- November low, Nov ’17 t-line initially targeted
- Must be cautious once at support, may put in floor
Let us help you. DailyFX has guides ranging from forecasts to trade ideas to education all in one location – DailyFX Trading Guides.
Triangle finally breaks, has Euro rolling downhill
Friday’s breakdown finally put the Euro outside of the triangle it had been forming over the course of the past month. It’s been an anticipated event, but confirmation was needed first before running with a more aggressive short bias.
Looking lower there is support not too far away. First up is the November low at 11215, followed by the lower trend-line extending over from November of last year; resides around roughly 11180. The way EUR/USD has been trading we’ll want to pay close attention to how it reacts once support is met.
The moves over the past few months haven’t been sustained for very long and this could be another unsustainable drive lower. With that in mind, from a tactical standpoint if the Euro starts to turn up from one of the aforementioned levels then it may be best to call it a wrap as a quick counter-trend bounce could develop.
If, however, selling pressure increases and a break below support unfolds, then perhaps a little momentum may kick in towards near 11100 or worse. It seems unlikely we will see too much power given not only the Euro’s behavior in past months but also because there is only about a week left in the year of full market participation before we go into ‘holiday’ mode. However, even as such, watch and follow the price action first.
Traders are generally long EUR/USD, see the IG Client Sentiment page to see how this acts as a contrarian indicator and is supportive of lower prices.
EUR/USD Daily Chart (Levels, lines to watch)
EUR/USD 4-hr Chart (Triangle broke Friday morning)
—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at@PaulRobinsonFX
Other Weekly Fundamental Forecast:
Price Rally Pulls Back ahead of FOMC
Gold Weekly Technical Outlook: Price Rally Pulls Back ahead of FOMC
In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend.Gold prices snapped a three-week winning streak with the precious metal off by nearly 1% ahead of the New York close on Friday. Here are the key targets & invalidation levels that matter on the Gold (XAU/USD) weekly chart heading into the close of the year.Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
New to Gold Trading? Get started with this Free How to Trade Gold -Beginners Guide
Notes:In my most recent Gold Technical Outlook we noted that price was, “responding to up-slope resistance and while we could see some near-term weakness, the focus remains higher while above within this formation” (channel formation in red). Gold is testing near-term support into the close of the week at 1234/36 where the 2017 December low converges on the 200-week moving average with more significant support seen at 1216/21– a region defined by the December open, the 38.2% retracement of the August advance and basic channel support. A break here would risk a larger setback with such a scenario targeting broader bullish invalidation at the yearly low-week close at 1184.
Initial resistance stands at the 50% retracement of the yearly range at 1263 with a breach above the highlighted slope confluence at 1270 needed to validate a larger reversal in price targeting 1287 and the 2018 open at 1302.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
The immediate threat remains for a deeper pullback IF price slips below 1234 but the medium-term focus remains higher while above 1216. From a trading standpoint, look for weakness to offer more favorable entries lower down near slope support.
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Gold Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long Gold – the ratio stands at +3.55 (78.0% of traders are long) – bearish reading
- Long positions are 1.4% higher than yesterday and 5.8% higher from last week
- Short positions are 2.0% lower than yesterday and 4.9% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger Gold-bearish contrarian trading bias from a sentiment standpoint.
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at firstname.lastname@example.org
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