Markets Trade in ‘Risk Off’ Mode, NZD Tumbles on RBNZ Cut Remarks

Risk Averse Trading ahead of Trade Talks Outcome

The dollar traded higher against all but two of the other G10 currencies on Thursday. It gained the most against the NZD, AUD and SEK in that order, while the currencies that managed to resist its strength were the safe-havens JPY and CHF.

S&P 500 — Technical Outlook

The S&P 500 closed yesterday slightly in the red and looking at its cash index on the 4-hour chart, the US index is balancing around its 21 EMA, waiting for the next catalyst, which could trigger either a strong buying or selling activity. The S&P 500 found a bit of support near the 2764 hurdle, from which it rebounded. Or oscillators suggest that there is a negative divergence, which may result in the index sliding lower. But for now, we will stay neutral and wait for a confirmation break before we get comfortable with either of the sides.

Kiwi Tumbles on Rate Cut Prospect, Brexit Headlines Keep GBP Volatile

Now back to the other currencies, although weighed on by the broader risk-off trading activity, Kiwi and Aussie were driven by other stories as well. The New Zealand dollar tumbled overnight after RBNZ’s Deputy Governor Geoff Bascand said that the central bank is planning to increase capital requirements for banks over time, which could raise borrowing costs and lead to tighter financial conditions. Something like that may be countered by cutting the RBNZ’s benchmark rate, he added. The Aussie, which, during the early European morning yesterday, felt the heat of reports that China’s northern Dalian port banned coal imports from Australia indefinitely, tried to recover at some point during the day, but failed to enter the positive territory against its US counterpart. The Australian currency rebounded somewhat aided by headlines that the ban does not point to tensions between the two nations, as well as by RBA Governor Lowe’s remarks that this unlikely to have a dramatic effect on the Australian economy.

NZD/CAD — Technical Outlook

The New Zealand dollar got hit during today’s Asian trading session, where the currency depreciated against all its major counterparts. Looking at the 4-hour chart of NZD/CAD, we can see that it shifted strongly to the downside and is running the week heavily in the negative territory. NZD/CAD started off the week near the 0.9120 level, but from there the rate kept sliding lower, with small corrections higher along the way. We also note that NZD/CAD is stuck within a wide range between the 0.8910 and 0.9120 obstacles, which we will monitor closely. From the short-term perspective, the pair may continue sliding further, at least towards the lower bound of the aforementioned range, but overall, we will remain neutral and wait for NZD/CAD to break one of the above-mentioned key levels, before a clear directional move could be established.

As for the Rest of Today’s Events

During the European morning, we get the final CPIs for January from the Eurozone. As usual, the final rates are expected to confirm the initial estimates, namely that the headline CPI slowed to +1.4% yoy from +1.6%, and that the core rate ticked up to +1.1% yoy.

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