AUD/NZD and the RBA and RBNZ divergence [Video]
(Giles Coghlan LLB, Lth, MA – HYCM)
Last week both the RBA and the RBNZ met, but their policy responses were quite different and a divergence has opened up between them. The RBA hiked by 25bps, but there had been a 50% chance that it would hike by 50bps according to short-term interest rate markets. The RBNZ, by contrast, hiked by 50bps and had mooted the idea of a larger 75bps rate hike.
The forward guidance was different too. The RBA has taken a more cautious note recently on further rate hikes and expressed some concerns about its domestic economy and the slowing global economy. Short Term Interest Rates are priced in a lower terminal rate after the last meeting.
The RBNZ, by contrast, had a far more hawkish perspective and Governor Orr stated in the annual report on Oct 11 that ‘there is more work to do and increasing the official cash rates the most effective way we can reduce inflation and support maximum sustainable employment’. This hawkish comment was reflected in the terminal rate which is currently set to be just under 5% for May 2023 next year.
This divergence should favour AUDNZD selling in the near term with a divergence in the central banks’ move relative to the market’s pricing for their rate decisions.
Major trade risks: The major risk here is if the RBA or the RBNZ make any significant announcements that change this outlook.
EUR/GBP could rise towards the 0.8770 level
Looking at EURGBP’s chart, we can see that after yesterday’s strength of GBP, the fx pair broke through its support level at around 0.8720 and fell below the rate of 0.86 whereas currently it is traded at around 0.8647. Today it might approach its resistance level of around 0.8720 but if not able to pass it then it should be returned back to its support level at around 0.86 otherwise it could rise higher toward its next resistance level at around 0.8770.
USD/CAD retraces after hitting fresh 29-month high
(Stefanos Oikonomidis – XM)
USDCAD has been in a steep uptrend since mid-September when the price managed to forcefully cross above the 1.3222 region. Although the pair spiked higher to a fresh 29-month high in the previous daily session, it quickly corrected lower and closed the day with losses, hinting that the rally could be overstretched.
The momentum indicators currently suggest that bullish forces are waning. Specifically, the stochastic oscillator is sloping downwards after posting a bearish cross, while the MACD histogram has retreated beneath its red signal line but remains in the positive territory.
Should the negative momentum strengthen, the pair could extend its recent retreat and encounter initial support at the 1.3675 region. Sliding beneath that floor, the bulls might aim for the recent low of 1.3500 before the attention shifts to the July peak of 1.3222. Even lower, the 1.3074 barrier could prove to be a tough one for the price to overcome.
Alternatively, if buyers re-emerge and push the price higher, the 1.3840 hurdle may act as the first line of defence. Crossing above the latter, the 29-month high of 1.3976 could provide further upside protection. Should that barricade fail, the price could ascend to form multi-year peaks, where the May 2020 resistance of 1.4140 may curb any advances.
Overall, even though bullish pressures appear to be subsiding, USDCAD’s steep uptrend remains intact. Nevertheless, a dive beneath the 1.3500 floor could be the starting point of a moderate downside correction.
GBP/JPY continues the upside momentum above 200-day SMA [Video]
(Stefanos Oikonomidis – XM)
GBPJPY posted a bullish rally over the last couple of days, rebounding off the 159.70 barrier and surpassing the SMAs as well. The pair is flirting with the 167.00 round number with the technical oscillators confirming the recent bullish bias. The RSI is ticking slightly higher in the positive region, while the MACD is extending its movement above its trigger and zero lines.
More upside pressures could open the way for the next immediate resistance at 167.50 before resting near the more-than-six-year high of 168.65. If the market manages to jump higher, the April 2015 peak of 175.00 may halt the bullish actions.
On the other hand, a dive beneath the 165.70 support could take the market towards the 50- and 20-day simple moving averages (SMAs) at 162.30 and 161.30 respectively ahead of the 200-day SMA at 160.70. Steeper losses could meet the 159.70 obstacle and the 152.60 hurdle.
To sum up, GBPJPY is bullish in the very short-term and any advances beyond the more-than-six-year high could endorse a long-term positive outlook.