Daily Report: Kiwi Tumbles as RBNZ Signals Pause and Warns of Sharp Fall

New Zealand dollar drops sharply today after RBNZ hike OCR by 25bps to 3.50% as expected but signaled a pause. Governor Wheeler noted in the statement that “it is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level.” The comments regarding exchange rate were also seen a bit strong as Wheeler noted that the level of the Kiwi is “unjustified and unsustainable” versus prior description that it’s not “sustainable at current levels”. RBNZ even went further as warned “there is potential for a significant fall.” Markets are now pricing in for RBNZ to stand pat within this year. Also released from New Zealand, trade surplus narrowed less than expected to NZD 247m in June.

Technically, NZD/USD’s sharp decline today pushed it through the 55 days EMA firmly. The development further affirmed the case that an important top is formed at 0.8835, just ahead of key resistance level of 0.8842. Near term outlook stays bearish as long as 0.8719 resistance holds. Deeper decline is expected to 0.8401 cluster support (38.2% retracement of 0.7682 to 0.8835 at 0.8395).

In the bigger picture, it should be noted again that the pair is staying in the long term sideway pattern fro 0.8842 (2011 high). Fall from 0.8835 could be the third leg inside the pattern, which is a medium term fall. Sustained break of the above mentioned 0.84 cluster support will pave the way to 0.7682 and below in medium term.

Released from China, the HSBC manufacturing PMI rose to 52.0 in July versus expectation of 51.2. That’s the highest level since January 2013. HSBC noted that “economic activity continues to improve in July, suggesting that the cumulative impact of mini-stimulus measures introduced earlier is still filtering through.” And, HSBC expected “policy makers to maintain their accommodative stance over the next few months to consolidate the recovery.” The data gave AUD/USD a lift in Asian session today but the pair is still stuck in recent range below 0.9504.

Elsewhere, Japan trade deficit came in at JPY -1.08T in June, manufacturing PMI dropped to 50.8 in July. PMI data will be the main focus in Eurozone today. Meanwhile, UK will release retail sales and US will release jobless claims and new home sales.

Daily Pivots: (S1) 1.4189; (P) 1.4272; (R1) 1.4317; More

EUR/AUD’s fall extends to as low as 1.4197 so far and met mentioned target of medium term fibonacci level at 1.4216. At this point, intraday bias stays on the downside for deeper decline. But again, the decline from 1.5831 is viewed as a correction. Thus, we’ll start to look for reversal signal below 1.4216 and above 1.4050 key support level. Above 1.4358 resistance will be the first sign of reversal and will turn bias back to the upside for 1.4610 resistance.

In the bigger picture, a medium term top is in place at 1.5831 on bearish divergence condition in daily and weekly MACD. Fall from there is viewed as a correction and could extend lower to 38.2% retracement of 1.1602 to 1.5831 at 1.4216. Meanwhile, we’d expect strong support from 1.4050 to contain downside and bring rebound. Based on the five wave impulsive structure of the rise from 1.1602 to 1.5831, such rally should resume after finishing the consolidation pattern from 1.5831 and target 50% retracement of 2.1127 (2008 high) to 1.1602 (2012 low) at 1.6365 and above.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
21:00
NZD
RBNZ Rate Decision
3.50%
3.50%
3.25%

22:45
NZD
Trade Balance (NZD) Jun
247M
155M
285M
270M
23:50
JPY
Trade Balance (JPY) Jun
-1.08T
-1.11T
-0.86T

1:35
JPY
Manufacturing PMI Jul P
50.8
51.9
51.5

1:45
CNY
HSBC China Manufacturing PMI Jul P
52
51.2
50.7

7:00
EUR
France Manufacturing PMI Jul P

48.5
48.2

7:00
EUR
France Services PMI Jul P

48.9
48.2

7:30
EUR
Germany Manufacturing PMI Jul P

52.2
52

7:30
EUR
Germany Services PMI Jul P

54.7
54.6

8:00
EUR
Eurozone Manufacturing PMI Jul P

52
51.8

8:00
EUR
Eurozone Services PMI Jul P

52.7
52.8

8:30
GBP
Retail Sales M/M Jun

0.20%
-0.50%

12:30
USD
Initial Jobless Claims (JUL 19)

310K
302K

14:00
USD
New Home Sales Jun

478K
504K

14:30
USD
Natural Gas Storage

107B

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