RBNZ's Tightrope Act: ANZ's Projections and Risks for the Kiwi Currency

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Summary:

Ranked as the second-best performing G10 currency for the prior week and third-best for the past month, NZD faces critical dynamics, notably in the GBP/NZD range.

As the new week unfolds, the New Zealand Dollar (NZD) exhibits early softness, contrasting its robust performance over the past week and month. Ranked as the second-best performing G10 currency for the prior week and third-best for the past month, NZD faces critical dynamics, notably in the GBP/NZD range. The imminent Reserve Bank of New Zealand (RBNZ) decision introduces potential volatility, with focus on interest rates and the central bank's guidance. Analysts anticipate a nuanced communication challenge for the RBNZ, balancing market guidance without signaling drastic policy shifts. City Index analysis points to NZD/USD finding support, while technical analysis unveils patterns across monthly, weekly, and daily charts, hinting at potential market movements.

The New Zealand Dollar (NZD) is ushering in the new week with a hint of softness. This subtle dip follows a period of commendable strength, positioning NZD as the second-best performing G10 currency for the preceding week and the third-best over the past month.

The GBP/NZD has caught the attention of traders and analysts alike. Locked in a tight range, the pair showcases a respectful adherence to the 23.6%-38.2% Fibonacci retracement of the August to October decline. Chart analysis suggests potential resistance hovering above 2.0775 and substantial support at 2.0583, setting the stage for potential movements.

Adding an element of anticipation to the week, the Reserve Bank of New Zealand (RBNZ) decision scheduled for Wednesday looms large. While expectations point towards the maintenance of interest rates, market participants eagerly await the central bank's guidance regarding future policy moves.

The RBNZ's potential resistance against rate cut expectations emerges as a pivotal narrative. The central bank may opt to counter aggressive market projections that aim to ease New Zealand's monetary conditions. Such a stance could potentially bolster the NZD, influencing its performance in the immediate aftermath of the RBNZ decision.

However, this strategic communication by the RBNZ is no small feat. Analysts anticipate a delicate balancing act, requiring the central bank to convey a tone that guides markets without signaling abrupt shifts in policy. The potential risks are perceived to be tilted towards the upside for the Kiwi on a non-dovish outcome.

Insights from financial institutions contribute to the multifaceted analysis. ANZ expects the RBNZ to stay the course, maintaining a vigilant stance while remaining in data-watch mode. The potential risks, however, seem skewed to the upside for the Kiwi, contingent on a non-dovish outcome.

City Index, in its analysis, points to NZD/USD deriving support from broken resistance levels, establishing higher lows. The critical support to defend in this scenario is identified around the 0.6050 mark.

RBNZ's Tightrope Act: ANZ's Projections and Risks for the Kiwi Currency_1

Zooming in on technical analysis, the monthly chart unveils a long-term sideways range since 2017, with recent peaks in March 2020 and August 2023. The weekly chart highlights a potential lower movement following a manipulation candle in August 2023. However, the recent price range between 2.1000 and 2.0600 introduces an element of caution.

RBNZ's Tightrope Act: ANZ's Projections and Risks for the Kiwi Currency_2

On the daily chart, a symmetrical triangle pattern emerges in shorter timeframes, signaling a potential downward correction with a retest of the resistance zone before moving towards the previous peak.

As the week progresses, the NZD's performance remains intertwined with the unfolding RBNZ decision, nuanced communication, and the ever-evolving technical landscape. Traders and investors navigate the complexities, seeking cues for potential market movements in the dynamic realm of foreign exchange.

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Thomas

Economic

Bond

Asian stocks briefly made one-week highs on Wednesday, bonds rallied and the dollar sank on new hints at U.S. interest rate cuts, while the New Zealand dollar jumped after its central bank said another hike may be necessary if inflation proves stubborn.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent in early trade before weakness in Hong Kong tech shares dragged it back to flat.

Japan's Nikkei fell 0.2 per cent. The New Zealand dollar was last up 1.1 per cent at a four-month high of $0.6207, having blown past resistance.

The U.S. dollar, meanwhile, slid to fresh multi-month lows on the euro, yen, sterling, the Australian dollar, yuan and Swiss franc. Gold hit a seven-month high above $2,051 an ounce.

Overnight Fed Governor Christopher Waller - an influential and previously hawkish voice at the U.S. central bank - told the American Enterprise Institute that rate cuts could begin in a matter of months, provided inflation keeps falling.

Fed funds futures rallied on the remark to price more than hundred basis points of cuts in 2024 and 40 per cent chance they begin as soon as March. Two-year Treasury yields fell sharply and along with the dollar fell further still in Asia.

"The market clearly moved on Governor Waller's opening up the possibility of cuts," said Tapas Strickland, head of market economics at National Australia Bank in Sydney. Waller's remark echoed earlier comments made by Fed Chair Jerome Powell.

The two-year yield hit its lowest since mid-July at 4.70 per cent and the benchmark 10-year yield fell 4 bps to its lowest since September at 4.30 per cent.

The dollar was last down 0.5 per cent at 146.68 yen, its lowest since Sept. 12 and a drop of nearly 2 per cent in three days. It touched a 3-1/2 month low at $1.1017 per euro.

Waller said that if the decline in inflation continues, "for several more months ... three months, four months, five months ... we could start lowering the policy rate just because inflation is lower."

"There is no reason to say we will keep it really high," he said.

Conditionality

Waller's remarks extended what has been a two-week rally in stocks and bonds around the world since a benign U.S. inflation report two weeks ago - except in China where doubts about the economy have investors decidedly downbeat.

Global stocks are up almost 9 per cent in November and are tracking toward their best month in three years. The Hang Seng is flat and hasn't posted a positive month since July.

The latest negative news came from Meituan which flagged slowing fourth-quarter growth for its mainstay food delivery business. Shares fell 8 per cent to a 3-1/2 year low on Wednesday, despite the company promising a $1 billion buyback.

The Hang Seng fell 0.9 per cent on Wednesday. Mainland blue chips fell 0.4 per cent and are heading for a fourth monthly decline in a row with a 1.9 per cent fall in November.

Some analysts are also wary that markets have run with parts of Fed officials' remarks - flagging possible rate cuts - even though the comments have been conditional on further declines in inflation and on financial conditions staying restrictive.

New Zealand sounded something of a warning note on Wednesday when the central bank slightly lifted its interest rate projections and warned hikes may not be over.

"Bets ought to be guided by conditionality that policy is appropriately tight, not indulged with abandon on over-confidence that Fed is done (premised on linear projections of dis-inflation)," said Mizuho economist Vishnu Varathan.

Elsewhere Australian inflation eased by more than expected. In commodities Brent crude futures steadied to $81.75 a barrel but were set for a monthly drop, while Singapore iron ore futures are up 9.6 per cent in November at $130.50 a tonne.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Westpac

Economic

Central Bank

Short description: The RBNZ left the OCR at 5.5% as expected but was more hawkish on future prospects. The RBNZ's projections continue to reflect the risk of further increases in the OCR in 2024. An easing cycle looks quite some time off.

The RBNZ's projections for the OCR were revised 10bp higher to a peak of 5.69% in September 2024, implying around a 75% chance of a further 25bp rate hike. The projections imply a gradual easing of policy from the first half of 2025. The long-run neutral OCR was adjusted up 25bp to 2.5%.

The RBNZ's short term CPI forecasts have been revised down slightly in the near term but significantly higher from mid-2024 reflecting a concern that migration driven population growth will add to demand and the housing market. CPI inflation still gets back inside the range in Q3 2024, but the RBNZ sees upside risks here.

Our overall impression is that this is in line with our concern that more tightening may be required to ensure inflation returns promptly to target.

Talking tough and maybe doing something.

As widely expected, the RBNZ left the OCR at 5.5% at its final policy review for this year. Of much greater interest to markets was what the Bank had to say about the outlook for the OCR next year and beyond.

In summary, the updated projections in the accompanying Monetary Policy Statement (MPS) contained significant revisions from those published back in August. The projections continue to reflect a risk that a higher OCR will ultimately be required, with the probability of a further 25bp hike in 2024 now estimated at around 75% compared with 36% previously (the peak OCR increased to 5.69% from 5.59% previously). Thereafter, with CPI inflation forecast to move back inside the target range in Q3 next year (unchanged from the August forecast) the RBNZ's projections imply a modest easing cycle might be possible from mid-2025 – much later than implied by current market pricing.

The most notable changes in the press statement and meeting record from those which accompanied the October policy review was increased concern that inflation would remain persistent and upside risks from these upwardly revised forecasts. A key driver is increased concern that migration and population would drive increased demand and medium-term inflation pressures. The RBNZ's forecast for house prices was revised up from 4.3% to 5.5% for 2024 reflecting these pressures. The statement of record also notes that government investment looks set to be stronger (in line with PREFU) which also adds to medium term demand concerns.

Our overall first impression is that the RBNZ is concerned that further increases in interest rates may be required towards the middle of 2024. Key will be migration and housing market indicators over the next few months and the next couple of CPI outturns. The new government's fiscal projections in the HYEFU before Christmas will also be a key focus. OCR cuts certainly do not seem to be on the radar for the RBNZ right now.

We will publish a bulletin with further commentary and analysis later today, including implications for our call on the outlook for the OCR, once we have had time to read the full MPS and observe the Governor's post-meeting press conference.

To stay updated on all economic events of today, please check out our Economic calendar

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Titan FX

Forex

GBP/USD Technical Analysis

The British Pound started a major increase above the 1.2450 level against the U.S. dollar. GBP/USD even climbed above the 1.2550 level to enter a positive zone.

GBP/USD Eyes Additional Gains, U.S. GDP Next_1

Looking at the 4-hour chart, the pair settled above the 1.2600 level, the 100 simple moving average (red, 4 hours), and the 200 simple moving average (green, 4 hours).

It even tested the 1.2730 resistance before there was a consolidation phase. On the upside, immediate resistance is near the 1.2730 level. The next key resistance is near the 1.2750 level. A close above the 1.2750 zone could open the doors for more upsides. The next stop for the bulls might be 1.2800.

If there is a downside correction, the pair might find support near the 1.2665 zone. There is also a key bullish trend line forming with support at 1.2600 on the same chart.

The trend line is close to the 50% Fib retracement level of the upward move from the 1.2449 swing low to the 1.2732 high. If there is a downside break below the trend line, the pair could decline toward the 1.2550 support.

The 61.8% Fib retracement level of the upward move from the 1.2449 swing low to the 1.2732 high is also near 1.2550. The next key support sits at 1.2450, below which the pair could test the 1.2420 pivot level in the near term.

Looking at Gold, there were strong bullish moves above $2,025 and there could be more upsides toward $2,050 in the coming sessions.

Economic Releases

U.S. Goods Trade Balance for Oct 2023 - Forecast $-85.5B, versus $-86.3B previous.

U.S. Gross Domestic Product for Q3 2023 (Preliminary) – Forecast 5.0% versus previous 4.9%.

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FastBull Featured

Daily News

[Quick Facts]

1. Two Fed hawks give dovish remarks.

2. U.S. home price index hits a record high after rising for 8 months.

3. Famous investor Charlie Munger dies at 99.

4. Binance US: Zhao (CZ) resigns as Chairman of the Board of Directors.

5. BOJ's paper loss on bond holdings grows to a 20-year high of $71bn.

[News Details]

Two Fed hawks give dovish remarks

Fed governor Waller, one of the Fed's most hawkish officials, seemed to be paving the way for rate cuts at an event at the American Enterprise Institute (AEI) on Tuesday. He said that he was "increasingly confident" that the Fed's current interest rates would prove sufficient to drive inflation down to the 2% target and that if inflation continues to fall, a rate cut would possibly come a few months later. Fed Governor Bowman, who has been hawkish, said she supports further rate hikes if needed, but she added some conditions compared to previous remarks, saying she supports taking action if inflation progress stalls or cannot fall to target in time. The two big hawks who promoted substantial interest rate hikes to curb inflation last year have hinted that they are now happy to see interest rates remain unchanged, which reinforces expectations that the Fed's current interest rate hike cycle has come to an end.

In addition, the "big dove" Chicago Fed President Goolsbee also said that interest rates staying high for too long is a matter of concern.

U.S. home price index hits a record high after rising for 8 months

U.S. home prices continue to climb to an all-time high. A national gauge of home prices rose 0.7% in September from August, according to seasonally adjusted data from S&P CoreLogic Case-Shiller. It was the eighth straight month of gains for the index. Mortgage rates above 7% have chilled the housing market, keeping both would-be buyers and sellers on the sidelines.

Famous investor Charlie Munger dies at 99

Berkshire Hathaway a few minutes ago was advised by members of Charlie Munger's family that he peacefully died at 99 this morning at a California hospital, Berkshire Hathaway posted a statement on the website of its subsidiary Business Wire on Tuesday, November 28, local time. Charlie Munger was a legendary investor who teamed up with Warren Buffett over the past 46 years to create one of the finest investment records of all time -- the book value of Berkshire's stock created an investment myth with a compounded annualized return of 20.3%, and the price per share rose from $19 to $84,487. Warren Buffett eulogized his old partner saying, "Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom and participation."

Binance US: Zhao (CZ) resigns as Chairman of the Board of Directors

Cryptocurrency exchange Binance US announced on Nov. 28 that it is not implicated in the settlement announced last week as it operates separately from Binance, and it holds no outstanding enforcement matters with U.S. regulatory bodies such as the U.S. Department of Justice, Financial Crimes Enforcement Network, Office of Foreign Assets Control, or the Commodity Futures Trading Commission. The firm maintains full operations. Binance founder Changpeng Zhao has decided to resign as chairman of the Board of Directors of Binance US and transfer his voting rights through a proxy arrangement.

BOJ's paper loss on bond holdings grows to a 20-year high of $71bn

The Bank of Japan's (BOJ) semi-annual financial report released on Tuesday showed that its bond holdings have suffered the highest floating losses on record in the last six months, demonstrating the challenges faced by the BOJ governor Kazuo Ueda as he moves toward policy normalization. At the end of September, the paper loss on those assets was 10.5 trillion yen ($70.7 billion), the biggest since fiscal 2004. That's over six times higher than the 157 billion yen loss in the previous fiscal year.

[Focus of the Day]

UTC+8 17:00 Switzerland ZEW Investor Confidence Index (Nov)

UTC+8 18:00 Eurozone Industrial Climate Index & Economic Confidence Index (Nov)

UTC+8 21:00 Germany CPI Prelim MoM (Nov)

UTC+8 23:05 BOE Gov Bailey Speaks

UTC+8 23:30 U.S. EIA Weekly Crude Stocks

UTC+8 02:45 Next Day: FOMC Member Mester Speaks

UTC+8 03:00 Next Day: Fed's Beige Book

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Economic

Energy

OPEC+ delays decision on lack of consensus

Oil prices tumbled after OPEC and other major oil producing nations, known as the OPEC+ group, decided to delay a meeting scheduled for Sunday, November 26, to Thursday, November 30. Investors may have sold black gold on concerns that the group was unable to reach consensus on further production cuts amid a weakening global growth outlook, as it was anticipated heading into the meeting.

Sources said that this was due to African countries Nigeria and Angola aiming for higher oil output allowance, as they were earlier given lower targets after years of failing to meet the previous ones. Nonetheless, on Friday, news hit the wires that the alliance has moved closer to a compromise, which increases the likelihood of having a consensus on Thursday.

Are deeper cuts on the table?

Before the announcement of the postponement, it was largely anticipated that members are likely to extend or even deepen the existing supply cuts into next year. Saudi Arabia was also expected to stretch its additional voluntary supply cuts to at least the first quarter of 2024, so the big question may be whether there will be consensus of deeper cuts by other nations.

Although Saudi Arabia may be willing to cut more, it will likely want concessions from other nations as well. For example, Iraq is already exceeding its existing production target and could be tempted to take more barrels to the market if an accord to reopen its Kurdish export pipeline is soon reached. Iran's exports have also been increasing. Iran's targets have been suspended due to the imposition of US sanctions, but there is clear frustration among Gulf producers regarding soft enforcement by the US. Thus, there may be clear calls for this nation to be also given a target.

Any recovery could be limited and short-lived

As for the market's reaction, Friday's news that members have nearly reached common ground did not trigger a rebound in oil prices, which means that investors may be thinking that whatever cuts are decided, the alliance may have been on track to agree more if it weren't for the disagreements. A relief bounce remains a likelihood in case the group as a whole deepens its production cuts, but the hypothesis that they could have done more could keep the recovery limited and short-lived.

What's more, US output is also on the rise, hitting new records, which combined with weakening global demand prospects constitutes another reason why any decision-related recovery is likely to be brief. Therefore, oil prices could stay in a downtrend for a while longer, which could result in lower headline inflation around the world and perhaps prompt central banks whose economies are on the verge of recession, like the Eurozone, to cut interest rates earlier than currently anticipated.

WTI's broader path remains to the downside

From a technical standpoint, WTI's price structure remains of lower highs and lower lows below the downside resistance line drawn from the high of September 29. What's more, the 50-day EMA appears ready to fall below the 200-day EMA soon, which could validate the bearish picture. Although the 74.00 barrier provided decent support recently, it could soon be violated by the bears, with the next stop perhaps being the low of November 16 at around 72.15. A break lower would confirm a lower low on the daily chart and could see scope for extensions all the way down to the key area of 67.00.

For the picture to turn brighter, WTI may need to climb all the way above the crossroads of the aforementioned downtrend line and the round number of 80.00. Will Deeper OPEC+ Output Cuts Matter for Oil Prices?_2

Will Deeper OPEC+ Output Cuts Matter for Oil Prices?_2

To stay updated on all economic events of today, please check out our Economic calendar

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Damon

Forex

The EUR/USD pair is currently making steady gains, approaching multi-month highs around 1.0960, driven by a weakened USD and Christine Lagarde's somewhat hawkish remarks before the European Parliament.

Minor housing data from the U.S., specifically New Home Sales for October, came in below expectations but didn't significantly impact the pair.

Lagarde, President of the European Central Bank, cautioned that headline inflation might see a slight increase, and economic growth is anticipated to remain weak. However, Lagarde didn't provide clear indications on the duration of maintaining restrictive rates or the timeline for rate cuts.

The focus for the rest of the week will be on Eurostat's release of the Harmonized Index of Consumer Prices (HICP) and the U.S. report on the Core Personal Consumption Expenditures Index (PCE), influencing short-term expectations for the ECB and the Fed.

EUR/USD – D1 Timeframe

EUR/USD is currently trading around a major supply zone on the daily timeframe. The bearish array of the moving averages can be considered an additional confluence in support of the bearish sentiment. In the meantime though, there is a trendline support on the 4-Hour timeframe that I will be expecting price to break, before the bearish move can commence.

Analyst's Expectations

Direction: Bearish

Target: 1.06965

Invalidation: 1.10556

GBP/USD – D1 Timeframe

GBP/USD is currently at an intersection of a supply zone and a trendline resistance. Usually, this is considered basis enough for a bearish sentiment. However, considering the apparent lack of volatility from the US Dollar, I will personally wait to see a break of the minor trendline support on the 4-Hour timeframe for a safer entry, as in the case of EUR/USD.

Analyst's Expectations

Direction: Bearish

Target: 1.22494

Invalidation: 1.27452

USD/JPY – D1 Timeframe

USD/JPY is currently approaching the major demand zone with an overlapping trendline support. Based on this, I am expecting a bounce off of the trendline with an initial target at the 76% of the Fibonacci retracement level.

Analyst's Expectations

Direction: Bullish

Target: 150.28

1Invalidation: 145.692

Conclusion

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