Markets Back on “Risk Off” Mode, Kiwi Slides on RBNZ Decision

Risk Sentiment Sours due to Trade Uncertainty

The dollar traded higher against most of the other G10 currencies on Tuesday and during the Asian morning Wednesday. It lost ground only against the safe-haven JPY, while it traded virtually unchanged versus EUR and AUD. The main losers were NZD, GBP and CAD in that order.

DJIA — Technical Outlook

The equity markets took a dive yesterday, closing heavily in the red. The DJIA index travelled south as well, where it found good support near the 25795 zone. This is also where the price met the short-term upside support line, taken from the low February 8th, and then bounced from it. The index closed below the 26000 barrier, but the futures market then recovered some of those losses. Now the DJIA cash index is back above 26000 level and could invite a few more buyers to push the index a bit higher towards the 200 EMA, or even to the downside line drawn from the high of May 1st. For now, we will remain somewhat neutral, as the index might continue moving between the above-mentioned lines for a few days.

RBNZ Cuts Rates, Lowers Rate-Path Projections

Back to the currencies, the Kiwi was the main loser, coming under strong selling interest following the RBNZ decision. The Bank decided to cut interest rates to an all-time low of +1.50% from +1.75%, the first cut since 2016, noting that “a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates.”

NZD/USD — Technical Outlook

The New Zealand dollar sold off overnight after RBNZ cut its interest rate by 25bps. NZD/USD experienced a sharp spike lower, reaching the 0.6525 hurdle and establishing a new level of support there. The pair quickly retraced back up and continues to move in that direction. That said, eventually, further upside might be limited due to the short-term downside resistance line taken from the high of March 26th. Even though the rate may rise a bit more, as long as that downside line remains intact, we will continue aiming lower.

As for Today’s Events

During the European day, the ECB will publish the minutes from its latest policy meeting. At that meeting, Draghi and co. reiterated their guidance that interest rates are likely to stay at present levels “at least through the end of 2019”, with the ECB Chief noting again that the risks surrounding the Euro area economic outlook “remain tilted to the downside”. He also added that policymakers will consider “whether the preservation of the favorable implications of negative interest rates for the economy requires the mitigation of their possible side effects, if any, on bank intermediation”.

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