The FX market is reeling after a series of dovish central bank surprises over the last few days, and we haven’t even seen what the RBNZ will do at its meeting tomorrow yet. To recap, the SNB dropped its peg and cut interest rates to -0.75% last week, the Danish Central Bank cut Denmark’s main interest rate 15bps to -0.2%, the BOJ revised down its inflation expectations for 2015, both BOE hawks swung back to the dovish side of the ledger, the BOC surprised traders by reducing Canada’s benchmark rate to 0.75% and rumors swirled that the ECB may enact a EUR 600B per year QE program tomorrow (see our full ECB preview here). The unanimity of global central banks swinging toward fighting deflation has pushed out expectations for the first Fed rate hike to Q4 and left traders wondering, which central bank (besides the obvious answer, the ECB) will be next to cut interest rates.
Based on today’s price action, traders may be eyeing the RBNZ as the next likely candidate. We wrote about NZD/USD earlier this week, but a couple of high-impact economic reports have hit the island nation since then. For one, the Global Dairy Trade auction showed the third consecutive rise in dairy prices, a key New Zealand export. While the recent gain in prices is still dwarfed by the recent drop, this is the first time that dairy prices have rose for three consecutive 2-week periods since July 2013, suggesting that a bottom may finally be at hand.
On the other hand, last night’s New Zealand CPI report was a major disappointment, showing a 0.2% q/q drop in prices, vs. expectations of a flat reading. Much like the rest of the world, the lack of inflationary pressures will keep the RBNZ from raising rates any time soon, and may even force Governor Wheeler and company to cut if dairy prices take another tumble.
Technical View: NZD/USD
NZD/USD has now dropped through the key .7610 level we highlighted earlier this week, leaving rates at a fresh 2.5-year low in the mid-.7500s. From here, NZD/USD could see another 100+ pips of downside before hitting the next level of support, the 2011-12 triple bottom near .7450. With both the MACD and RSI indicators rolling over, the path of least resistance in NZD/USD will be lower as long as rates stay below previous-support-turned-resistance at .7610.
Source: FOREX.com
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