RBNZ Pushes NZD Down, UK GDP and AU Jobs Data in Focus

9 min readMay 13, 2020

Market sentiment was dented during the US session Tuesday, after disease expert Dr. Fauci said that a virus vaccine may take some time to be ready for distribution. In the FX world, the Kiwi was the main loser, after the RBNZ expanded its QE program and noted that negative rates could become an option in the foreseeable future. As for today, we already got the UK GDP data, while tonight, focus may turn to Australia’s employment report.

Investors Remain Concerned, Kiwi the Main G10 Loser

The dollar traded lower against the majority of the other G10 currencies. It underperformed the most versus NOK and SEK in that order, while it lost some ground against EUR, CHF, JPY and AUD in that order. The greenback gained only versus NZD and GBP, while it was found virtually unchanged against CAD.

The performance in the FX world paints a blurry picture with regards to the broader market sentiment and thus, we will turn our gaze to the equity world for clearing things up. There, the majority of EU indices closed in positive territory, but everything turned around during the US session. All three of Wall Street’s main indices slid on average around 2%, perhaps after the leading US infectious disease expert Anthony Fauci said before Congress that the development of a coronavirus vaccine “might take some time” to come out for distribution. He also warned that removing restrictions too quickly will put lives at risk and weigh on a potential economic recovery. Risk appetite rebounded again today, with most Asian bourses trading in the green.

It seems that investors are confused and dealing with a dilemma. On the one hand, they sometimes cheer the prospect of global economies restarting their engines, while on the other hand, they are sometimes fearful over a second wave of exponential virus spreading. As for our view, it still remains the same. As long as governments are careful while easing restrictions, risk sentiment may improve, which means higher equity prices and lower safe havens. Remember that, recently, we have been highlighting that the risk to that view is removing the “stay at home” measures too early, and it appears that the market shares that opinion.

Back to the currencies, the main loser was the Kiwi, which came under massive selling interest after the RBNZ monetary policy decision. The Bank kept interest rates unchanged, but nearly doubled its QE purchases from the current NZD 33bn to NZD 60bn, adding that they could still go higher. In the minutes accompanying the decision, it was noted that that negative interest rates will become an option in the future, although at present, financial institutions are not yet operationally ready. It was also noted that discussions about preparing for negative rates are ongoing.

The Kiwi is a risk linked currency and under normal circumstances we would call for it to strengthen during periods of market optimism. However, the ultra-dovish stance of the RBNZ may prevent it from performing well. It may be the only risk-linked currency that could underperform even during risk-on periods.

NZD/CHF — Technical Outlook

This morning, NZD/CHF broke through the lower side of the upwards-moving channel, which has been in play from around the end of March. Our oscillators on the 4-hour chart, the RSI and the MACD, are indicating a rise in downside momentum, which might stay here for a while more. For now, we will take a bearish approach and target slightly lower areas.

The rate could slide to the current lowest point of May, at 0.5787, which if fails to withstand the bear pressure and breaks, might clear the way for NZD/CHF to move to the 0.5750 hurdle, marked by the lows of April 16 thand 23 rd. The pair could stall there temporarily, or even rebound slightly. That said, if the bears are still feeling more comfortable, this may result in another slide, which may push the rate below the 0.5750 obstacle. If so, the next potential support area to consider, might be the 0.5679 level, marked by the lowest point of April.

Alternatively, if NZD/CHF climbs back in the aforementioned rising channel and pushes above the 0.5933 barrier, marked by the high of May 12 th, that may increase the chances of the bulls to lift the rate higher. The pair could then travel to the highest point of April, at 0.5994, which could stall the pair temporarily. However, if that area is still no match for the bulls, its break could open the door for a move to the 0.6038 and 0.6055 levels, marked by the highs of March 3 rdand 2 nd, respectively.

UK GDP and Australia’s Jobs Data Under Investors’ Radar

The pound was the second loser in line, perhaps due to comments by BoE Deputy Governor Ben Broadbent. Asked over whether the Bank could consider negative interest rates, Broadbent said that the MPC is prepared to do what’s necessary, keeping the prospect well on the table.

Today, during the early European morning, we already got the UK GDP data for Q1. The qoq rate came in at -2.0%, better than the -2.5% forecast, something that pushed the yoy rate down to -1.6%, instead of -2.1%. Last week, the BoE kept its monetary policy unchanged, but noted that the current QE is set to reach its target at the beginning of July. This, combined with officials’ readiness to take further action if needed, suggests that a QE expansion may be on the cards at the June meeting. With the Bank also projecting a 14% tumble in GDP for the whole year of 2020, and Governor Bailey speaking about a 35% drop in Q2 activity, the better than expected Q1 print is highly unlikely to alter the Bank’s plans for further stimulus.

Tonight, during the Asian morning Thursday, Australia’s employment report for April is due to be released. The unemployment rate is expected to have risen 8.3% from 5.2%, while the net change in employment is anticipated to show that the economy has lost 575k jobs after gaining only 5.9k in March. With RBA policymakers scaling back their QE purchases, it would be interesting to see whether a soft employment report would be a reason for them to stop doing so. That said, our own view is that officials are aware that data for March and April may come on the soft side. With the spreading of the coronavirus slowing down and governments around the globe easing their restrictions, we think that the prospect of better days may allow them to continue reducing their bond purchases.

GBP/AUD — Technical Outlook

GBP/AUD continues to drift lower, forming lower lows and lower highs. In addition to that, the pair keeps trading slightly below a short-term tentative downside resistance line taken from the high of May 4 th. As long as the rate remains below that line, we will continue aiming for lower levels.

If the aforementioned downside line stays intact and GBP/AUD falls below yesterday’s low, at 1.8880, this would confirm a forthcoming lower low, that way attracting more sellers into the game. The pair may then drift to the 1.8765 obstacle, which if fails to provide support and breaks, could clear the path for further declines. That’s when we will target the 1.8615 level, marked by the lowest point of December 2019.

On the upside, a break of the previously-discussed downside line and a push above the 1.9125 barrier, marked by yesterday’s high, could open the door for a possible move to the upside again. The pair might then travel to the high of May 7 th, at 1.9325, which may provide a temporary hold-up for GBP/AUD. The pair could even retrace slightly lower from there. That said, if it stays above the 1.9125 zone, the bulls could take advantage of the lower rate and lift GBP/AUD higher again. If this time the 1.9325 area breaks, this may open the door the next potential resistance level, at 1.9533, marked by the current highest point of May.

As for the Rest of Today’s Events

From Sweden, we have the CPIs for April. Both the CPI and CPIF rates are forecast to have tumbled to +0.1% yoy from +0.6%. That said, we prefer to pay more attention to the core CPIF metric, which excludes the volatile items of energy. In March, that rate ticked down to +1.5% from +1.6%, suggesting that the slide in the headline rates (from +1.0% yoy to +0.6%) was due to the collapse in energy prices. Thus, another downtick in the core CPIF rate would point that the headline rates fell for the same reasons in April, and it is unlikely to urge Riksbank policymakers to cut rates back to negative waters soon. For them to start thinking the possibility of such an action, a notable slide in the core CPIF rate may be needed.

Eurozone’s industrial production for March and the US PPIs for April are also coming out. Eurozone’s IP is expected to have fallen 12% mom after sliding 0.1% in February, while the headline US PPI rate is expected to have declined to -0.4% yoy from +0.7%. The core rate is forecast to have slid to +0.9% yoy from +1.4%.

As for the speakers, we have two on the agenda: Fed Chair Jerome Powell and ECB Vice President Luis de Guindos. Taking into account the recent chatter around negative rates in the US, we will pay more attention to Powell’s speech as we would like to hear his view on the matter.

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Originally published at https://www.jfdbank.com on May 13, 2020.