NZD shorts may find the going tougher this week as the Kiwi recovers ahead of Thursday’s RBNZ decision.
Thursday’s RBNZ rate decision will be an important one, not the rate itself which is widely expected to remain unchanged at 1.75%. Traders will be looking for hints that the RBNZ will mollify the dovish stance that they have held for much of the past year.
Certainly, the data coming from New Zealand is supportive of this, most especially the recovery in global dairy prices, New Zealand’s largest export. Over in the housing market, the RBNZ’s macro-prudential measures seem to be having some effect as well, with house price inflation slowing dramatically, even in Auckland.
The CFTC’s Commitment of Traders Report (COT) shows that as of early last week speculative NZD shorts had increased by over 50%. Commodity currencies, in general, had been sold off on geopolitical risk off fears and with the pullback in commodity prices. The thing to note is that the COT short position remains stubbornly high, although New Zealand’s main commodity export has clearly seen its lows and the labour market remains very healthy.
With the amount of speculative shorts out there, there is the possibility that a short squeeze could develop should the RBNZ change its wording and/or future rate path guidance.
The kiwi (NZD/USD) has support at 6835, the low from last Thursday as commodities in Asia melted down across the board. The price action since has been constructive with resistance at 6970.
Above here we have resistance at 7055, the 100-day moving average and a series of daily highs in April. A daily close above here could signal more topside in Kiwi may occur.
NZD Daily
It was certainly “evens” after this weekends Austalia and New Zealand sports events. Something that both countries take far more seriously than the markets usually. The picture is not so clear however on the AUD/NZD cross.
New Zealand’s grass eating commodities (dairy), are generally performing better price wise then Austalia’s dig out of the ground ones. (Copper, coal, iron ore, etc.) Likewise, the RBA is clearly well and truly on hold for the foreseeable future as opposed tot he RBNZ where there is now clearly event risk.
The Kiwi has been eroding the AUD/NZD rally at a rate of knots since last week, the cross falling from 1.0940 to below 1.0700 today.
The 1.0700 level is more psychological than technical and forms intra-day resistance with 1.0750 behind. More importantly, AUD/NZD is flirting with its 100-day moving average at 1.0677, with a close below this tonight bearish technically.
Support appears at 1.0640 and then the 200-day moving average at 1.0600.
AUD/NZD Daily
NZD/JPY, like AUD/JPY, is a high beta cross towards risk sentiment in the market. NZD/JPY closed above its 200-day moving average overnight in a possibly bullish technical development. This could target a further move towards the 100-day moving average at 79.83.
Support sits at 77.00 and then the April low at 77.65 area.
NZD/JPY
Overall the kiwi has traded constructively against some of its G10 counterparts. With the RBNZ Thursday and large short positioning out on the street, there lies the possibility of a meaningful short squeeze to come.