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

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.