In addition to the FOMC decision at 2 PM ET, the Reserve Bank of New Zealand will also make a statement on their monetary policy an hour later a 3 PM ET/9 AM local time in New Zealand. The expectations is for no change in policy with the official cash rate to remain at 3.5%.
What are the technicals saying?
Longer term, the NZDUSD is trading at the lowest level since November 2011. Governor Wheeler has been harping on the idea that the currency remains overvalued on a trade basis. Specifically, he commented in the December 11th statement:
The exchange rate does not reflect the decline in export prices this year and remains unjustifiably and unsustainably high. We expect to see a further significant depreciation.
He also balanced the currency comment by adding:
Some further increase in the OCR is expected to be required at a later stage. Further policy adjustments will depend on data emerging over the assessment period.
The NZDUSD surge on December 10th statement with the price of the NZDUSD moving from 0.7672 to a high on December 11 at 0.78701. The pair moved higher and lower for the rest of December and until mid January. However, since the date of the de-pegging of the EURCHF, the currency has been trending lower as some of the safe haven flows started to come out of the currency and commodity prices continued their trend lower. The low has extended to 0.7397. The current price is 0.7463 – nearly 200 pips lower from the time just before the December announcement. So the price is lower, yes… but I don’t think it is “significantly” lower since that statement.
Looking at the longer term weekly chart the bias is more more bearish
NZDUSD is trading near the low going back to 2011.
- The price is below the 100 and 200 week MA (blue and green lines)
- The price is below trend line support both longer term (from the 2011 lows) and in the nearer term.
- The price in January cracked below the 2013 low at 0.7682 and the 2014 low at 0.7608. It is currently trading right around the 2012 lows.
The next target looks toward the November 2011 low at 0.7369. Below that the 0.73325 is the 38.2% of the move up from the 2009 low to the 2011 high. A move below that opens up the downside for further selling. The price has only traded 2 months below this level going back to 2010 (low 0.6560).
Looking at the hourly chart, the price momentum has slowed over the last few trading days – allowing the 100 hour MA to catch up with the price (currently at 0.7477). The MA wlll represent a key line in the sand for determining the bullish or bearish bias through the decision(s) tomorrow. A move above that level will look toward the topside trend line( blue circles). The 38.2% of the move down this month is also in play on any corrective move.
Will Governor Wheeler change his tune this month? He can look at the global situation and see signs of deflationary pressures. His own inflation is below the 1% lower target and commodity prices are continuing to trend lower. That might soften the thought that “an OCR rate rise is expected to be required”.
So I would expect that between now and then, if there is a squaring up rally that takes the price above the 100 hour MA, that traders will look to keep a lid on it near the topside trend line on the hourly chart (currently at 0.7519). Then, the FOMC first and the RBNZ decision will take center stage. Understand that risk will be elevated to high levels during this time, so plan your trades accordingly, but expect the upside to show some limits on rallies.
The NZDUSDs fall has slowed allowing the 100 hour MA to catch up.
