RBNZ proceeded with a 50 basis-points rate cut during the Asian session today and the NZD weakened across the board, as the bank’s decision was more dovish than market expectations. RBNZ’s Cash rate is now at 1.00%, yet analysts tend to note that another rate cut may be coming in the November meeting, how ever for the time being the market seem not to price in such a scenario currently. In its accompanying statement the bank noted that global economic outlook has weakened, and that low rates and higher government spending should support demand. In his press conference, Governor Orr stated that today’s decision does not rule out further action and said that the bank may do negative interest rates. We could see the Kiwi continuing to weaken in the after math of the decision and on the bank’s soft monetary policy. There could also by some negative side-effects for the Aussie, as RBNZ’s interest rate decision may be exercising peer pressure on RBA for a softer stance. NZD/USD tumbled during the Asian session today as it broke all of our support lines and finally tested yet did not break the 0.6380 (S1) support line, reaching record low levels since January 2016. We could see the pair weakening further, yet the RSI indicator in the 4-hour chart reached below the reading of 30 implying a rather overcrowded short position and suggesting that an upward correction may be in the works. Should the bears maintain control over the pair’s direction, it could break the 0.6380 (S1) support line and aim for the 0.6340 (S2) support level. Should the bulls take over, we could see the pair breaking the 0.6430 (R1) resistance line and aim for the 0.6480 (R2) resistance level.
Pound stabilises, yet seems to remain under pressure
Pound remained rather stable against the USD yesterday yet seems to remain stuck in the lows, as UK politics seem to continue to exercise pressure. Media report that UK’s new Prime Minister Johnson does not seem to have any intention of actually renegotiating the withdrawal agreement with the EU. Media report that the government is working with the central assumption that no deal will be struck, and UK’s foreign secretary is on a tour to try and secure new trade deals in North America. The blame game is on between the two parties and it was indicative that UK’s Brexit minister Gove stated that it’s sad that EU was refusing to reopen discussions on a divorce deal. It should be noted that Tory pro-Remainers, may have already started to contemplate possible actions, without excluding the possibility of overthrowing Boris Johnson. Analysts still note though the possibility of the UK getting another extension or even of snap elections. We could see the pound remaining under pressure, yet should there be no dramatic development, we could see it standing its ground. Cable maintained a sideways motion yesterday, between the 1.2210 (R1) resistance line and the 1.2135 (S1) support line. We expect the pair top maintain currently its rangebound movement, yet Brexit and UK politics may increase volatility suddenly for the pair. Should the pair come under the selling interest of the market we could see it breaking the 1.2135 (S1) support level, which served the pair in the past few days a couple of times and aim for the 1.2075 (S2) which stopped the bear’s advancement on the 1st of August. Should the pair’s long positions be favored by the market, we could see it breaking the 1.2210 (R1) resistance line and aim for the 1.2290 (R2) resistance level.
Other economic highlights, today and early tomorrow
Today during the European session, we get Germany’s industrial output for June and from the UK the Halifax house price index for July. In the American session we get Canada’s Ivey PMI for July and the latest EIA crude oil inventories figure from the US. During tomorrow’s Asian session, Japan’s current account balance is due out, yet the main attraction is expected to be China’s trade data for July, which are expected to be closely watched by traders and analysts. As for speakers please note that Chicago Fed’s President Evans and RBA’s Assist. Governor Bullock speak.
NZD/USD H4
Support: 0.6380 (S1), 0.6340 (S2), 0.6300 (S3)
Resistance: 0.6430 (R1), 0.6480 (R2), 0.6520 (R3)
GBP/USD H4
Support: 1.2135 (S1), 1.2075 (S2), 1.2000 (S3)
Resistance: 1.2210 (R1), 1.2290 (R2), 1.2375 (R3)
