NZD/USD – RBNZ joins “Verbal Currency Wars”

Ease if necessary? This is the phrase that have been thrown around cheaply by Central Bankers in 2013. First RBA surprised us with this during Feb’s rate decision, then BOE did the same during the quarterly inflation report. Even Bank of Thailand and Bank of Korea both said things to the same effect. However, nobody expected RBNZ Governor Graeme Wheeler to sprout the same rhetoric when speaking to the Manufacturers and Exporters Association on Wednesday.

This is the same RBNZ Governor that mentioned inflation risks as concerns and now he is “willing to use benchmark rate as a tool” to deflate the Kiwi – surely an inflationary effect will follow. This is highly interesting as in the same address, Wheeler noted that house prices are overheating, which makes the commitment to cut rates should NZD remain high becoming even more unusual. This is getting confusing as Wheeler is not giving a clear enough message: NZD is significantly overvalued? So is this considered “necessary” for rate cuts? What about inflation risks that you have mentioned previously? Why talk about rising housing prices? If this level is not high enough for rate cuts, how high must NZD go further? There are simply too many question left unanswered, though Wheeler may have chose his words wisely: Central Banks have been warned by the G20 not to openly discuss intervention of currency strength, in the fear that such talks will stroke political tension across different countries. Also, Wheeler may still be shackled by the same inflation risks previously mentioned, as such he does not one to commit himself to a scenario that will force his hand.

If that is his intention, his latest verbal tirade has worked wonders with NZD weakening significantly after the address. NZD crosses weakened across all major crosses, all these without RBNZ doing anything, with no rate cut scenario in sight.

Hourly Chart

From a technical perspective, NZD/USD remain supported b the 0.84 support, which is also around the consolidation range found on 13th Feb. Furthermore, Stochastic indicator is entering the Oversold region, adding strength to current support band. However, bulls should be wary of what Ichimoku is telling us, with the long candle simultaneously forming both a bearish Kumo breakout and a bearish Kumo Twist. Price has also broken below the Kijun-Sen (Red line) which was providing support/resistance for most part of price action between the current and previous week. Stochastic reading in this scenario can be discounted not just due to the fact that readings can tend to stay Oversold or Overbought for an extended period of time, but also due to the fact that Stoch readings are higher than the previous swing low found on 16th Feb, yet price is undeniably lower, showing a divergence which suggest that readings can potentially enter lower instead of bouncing higher from here.

Weekly Chart

Rising trendline remains unbroken, which suggest that the uptrend from Jul 2012 is still intact. However, there is still room between current price level and the rising trendline, suggesting that price may be able to go lower before finding support. Stochastic agrees with the assessment with peak forming. This peak also suffer the same issue as the hourly chart, with the same divergence spotted.

It seems that technicals may be equally confusing as the flip floppy RBNZ, which explains the lack of bearish follow-through in NZD weakness after the address. Market will certainly be watching out for next month’s rate decision on the 14th for further guidance from Wheeler.
There’s an especially high level of interest in the minutes from January’s Federal Open Market Committee meeting, after the December minutes rocked the markets. Those minutes, released January 2, noted that several FOMC members wanted to see quantitative easing stopped or slowed by the end of this year, earlier than expected. Even though unlikely, that comment helped drive up interest rates, and the 10-year note has held at a slightly higher level around 2 percent since then.
Under its quantitative easing program, the Fed is purchasing $85 billion in Treasurys and mortgage securities each month, in an effort to drive rates lower and keep mortgage rates low. The Fed said “almost all” members at that December meeting thought the asset purchase program that started in September was effective and supports growth, but they were concerned about the benefits versus the costs of ongoing purchases.

More Links:
EUR/NZD – RBNZ dovish surprise kick starts Channel upswing
EUR / USD – Moves to One Week High Back Above 1.34

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