December 6, 2022

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What’s next for the kiwi after the RBNZ decision?

3 min read

The kiwi was sent for a wild ride in trading today

NZD/USD may be trading flat on the day but that belies sentiment in the kiwi and price action that we have seen earlier in the day amid the RBNZ policy decision.

The pair pushed up to 0.6940 ahead of the central bank announcement before plunging to a low of 0.6865 before recovering quickly to a high of 0.6950; now trading at 0.6923.

It’s a messy one to try and interpret but it seems like traders are feeding off the more confident tones outlined by the RBNZ and also NZ officials on the virus situation.

The former kept its OCR unchanged today and despite OIS pricing showing a 50-50 indication going into the key risk event, the kiwi’s downside was limited by daily support from the 20 July low @ 0.6880 as well as the 0.6900 level:

NZD/USD D1 18-08

The thing to note about the RBNZ today is that they seem unfazed by the latest COVID-19 outbreak and is convinced that it is just a temporary hiccup.

RBNZ governor Orr argued that the economy is still holding up well and that the situation in the past day or so isn’t shifting them away from the tightening path – for now at least.

A rate hike announcement amid a nationwide lockdown would be bad for the optics, so one can understand why they put that off today. But Orr’s remarks seem to suggest that they will be doing so at the next chance possible if conditions are suitable.

Meanwhile, NZ officials are also helping to quell speculation that the virus situation will evolve into something similar to what we’re seeing with New South Wales in Australia.

NZ health chief Bloomfield says that the number of cases linked to the latest outbreak should be limited to around 50-100 persons, so that’s the hope.

It’s inconceivable to imagine how one can forecast such a figure in a time like this but only time will tell as to how serious or tense the situation in NZ will be in the days ahead.

And that hope is pretty much what the kiwi dollar is hanging on to right now in my view.

Declines may be limited from a technical perspective as highlighted above and if the virus situation is indeed contained, there’s good risk-reward in searching for a strong rebound in the kiwi as even all of the latest shenanigans are failing to drag the currency lower.

But again, a lot of that optimism hinges on the word ‘if’ more so than anything else.

I reckon any major bounce may be more limited closer to 0.7000 but the market could well get ahead of itself and price in a more optimistic NZ outlook based on the messaging by policymakers and lawmakers.

That said, we have seen how quick things can change – as observed yesterday – once the market realises that perhaps it has gotten too ahead of itself.




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