Looking Forward, Looking Back

September 10, 2015

Looking Back:
Asian markets woke up to news that as expected, the Reserve Bank of New Zealand has cut its official cash rate by 0.25% to 2.75%.

With the RBNZ interest rate cut widely expected and therefore largely priced into forex markets, NZD/USD had actually rallied all week into the decision. It was however the wording in the accompanying Monetary Policy Statement that did all the damage once the announcement was made official, with the Kiwi losing almost all of the week’s gains!

Governor Graeme Wheeler highlighted that the reduction in rates was in fact needed and that further easing seems likely due to the softening New Zealand economy.

“Some further easing in the OCR seems likely, depending on the emerging flow of economic data.”

NZD/USD 5 Minute:
nu7
Click on chart to see a larger view.

Kiwi continues to fall through the morning now all the way back to it’s weekly low.

The Bank of Canada on the other hand opted to not lower its benchmark interest rate, keeping the level on hold at 0.5%.

This was again no surprise to markets, with surveyed economists overwhelmingly of the opinion that the central bank would stay on hold for another month. Although that is the popular opinion right now, it is a different picture heading into the end of the year with another cut possible into Christmas.

The sustained low price of oil obviously hasn’t helped the highly export dependent economy and the words data dependent that are very much in vogue have again been thrown around North of the border here.

“The stimulative effects of previous monetary policy actions are working their way through the Canadian economy.”

USD/CAD 5 Minute:
uc3
Click on chart to see a larger view.

Interestingly enough, that spike on the lower time frames coincides with the 4 hourly bullish channel that we spoke about in yesterday’s chart of the day.

Technicals and Fundamentals in perfect harmony once more.

Looking Forward:
Today we get unemployment data out of Australia, with an expected drop to 6.2%. With unemployment a rare positive in the Australian economy, the larger trading risk would be if today’s number misses as yet more pressure would be heaped onto the RBA to act before the Fed can do some of the work for them.

Peter Martin in the Sydney Morning Herald had an interesting piece this morning explaining some of the Fiscal changes and why the larger unemployment numbers aren’t a true reflection of the state of the economy in Australia.

“Throughout July and August the government has been phasing in new rules for access to the Newstart unemployment benefit. It’s becoming harder to get without actually applying for jobs to prove you are looking for work. In July, with the phase-in not complete, the proportion of Newstart recipients actively looking for work jumped an impressive 9 per cent. An extra 38,000 Newstart recipients phoned or emailed potential employers, but the number of Newstart recipients didn’t climb at all, in fact it fell a bit.”

Something to keep in mind.

As well as Australian unemployment data, we also get Chinese inflation numbers released at the same time. A weaker than expected print could see talk of more easing or stimulus emerge once again.

All of this just screams choppy price action as conflicting views will be trying to get one over the other. I love positioning your trades heading into news but it would be wise to assess the fall out rather than jumping in on this one.

———

On the Calendar Thursday:
NZD Official Cash Rate (cut 0.25% to 2.75% as expected)
AUD Employment Change
AUD Unemployment Rate
CNY CPI y/y

GBP MPC Official Bank Rate Votes
GBP Official Bank Rate
GBP MPC Rate Statement
GBP Monetary Policy Summary

USD Unemployment Claims

———-

Chart of the Day:
We cap off a week of central banks galore with a look at Cable before tonight’s Bank of England decision.

GBP/USD Daily:
gu1
Click on chart to see a larger view.

After breaking out of the short term channel that price has been printing the last couple of months, as we head into the interest rate decision price has come back to re-test the breakout zone.

Whether this is because of perceived hawkish sentiment from the BoE or a USD driven move you can take your pick, but the technical zone doesn’t lie.

GBP/USD 4 Hourly:
gu2
Click on chart to see a larger view.

The 4 hourly chart shows the numerous touches on the zone and a good area to manage your risk around.

With the expected MPC Official Bank Rate Votes at 1-0-8 (increase-decrease-hold), do you see opportunity heading into tonight’s BoE decision? Trade forex on MT4 with Vantage FX.

Dane Williams – @VantageFX

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