NZD breaks higher as RBNZ raise rates again
The Kiwi has been strong for over a week now as traders anticipated the 25bps rate hike by the Reserve Bank of New Zealand. The Antipodean currencies along with the Canadian dollar have helped keep the forex heatmap looking risk-on even though the Russia/NATO saga continues.
In the overnight session, the RBNZ changed the Official Cash Rate (OCR) in more ways than one. They firstly increased the rate by 25bps to the expected 1% and they also announced they are dropping OCR and changing to the Monetary Policy Review. The current RBNZ monetary policy is a dual mandate in which they are supposed to keep inflation between 1% - 3% and support Maximum Sustainable Employment.
The RBNZ is currently not having to worry about the employment rate, as the unemployment % is low and the participation rate is high. Inflation however is on the rise, hence they felt it necessary to do something. The question is will the RBA follow suit at their next meeting.
The NZDUSD and AUDUSD daily charts show how strong they are, and they have both broken out of a descending trendline. The price action is still not fully bullish though as we need some significant highs removed and then a higher lower printed.
The NZD has been relatively strong for over a week now and today remains the strongest currency while flows out of the US dollar are helping the heatmap to look risk-on.
The markets are not however in a total risk-on mode as Western nations and Japan punished Russia with new sanctions for ordering troops into separatist regions of eastern Ukraine. Political commentators said the sanctions imposed so far were underwhelming and the markets would agree that although disruptive, it is preferential to all-out war. If Moscow launched an all-out invasion of Ukraine the sanctions would increase in severity, and we could then reassess market impact.
The EURGBP couldn’t close above 0.84000 and the bears are still very much in control. It could be that the currency pair trades at these levels for longer while we wait for some decisive action against Russia, but, no country or trading block is in a great place economically, so I doubt they will push too hard against Putin. For the Russian leader, he had to do something to keep his supporters happy and to show that Russia is still a major power. To get what he wanted without war is all down to him being good at pushing the international laws but not going so far as to give the other side no other options.
The look below in the DAX is at a crucial point on the charts. If the old support level is where bulls now flip to being bears, we will get a very fast sell-off back to 14,000. It would make sense that if this were to happen the trigger would be a touch of the 15,000, so possibly a 1000 point move to look out for. For anyone who may be thinking the current price action is a break of a Head & Shoulders chart pattern, we should consider that traders will have placed their stops above the right shoulder at 15,750. For anyone brave enough to buy this low the target would be the double top above 16,300.
The price action in gold is also looking interesting for those looking for a change in trend. Geopolitics helped push the precious metals higher, but for anyone following gold over the last 10-years it has not been an easy ride, with so many false starts to get back to what is perceived to be the true value. This chart pattern could be called a 3-Drives chart pattern, which traditionally is a reversal pattern. I am highlighting it as I feel the break and close below these support levels in green would signal the top is in.