RBNZ Slices Kiwi rates

August 7, 2019

USDCAD Open (6:00 am EDT) 1.3287-90   Overnight Range  1.3272-1.33196

New Zealand devalued its currency overnight and the Loonie sank along with Kiwi.  There wasn’t any Twitter outrage from the White House bathroom about “currency manipulation,” either. NZDUSD plunged from yesterday’s closing level of 0.6525 to 0.6380 after the Reserve Bank of New Zealand surprised markets and chopped the Overnight Cash Rate (OCR) by 0.50 bps, to 1.00%. The RBNZ said the cut was necessary because “Global economic activity continues to weaken, easing demand for New Zealand’s goods and services. Heightened uncertainty and declining international trade have contributed to lower trading-partner growth.” The RBNZ wasn’t alone. The Reserve Bank of Indian and the Bank of Thailand joined the interest rate cutting part.

Not surprisingly, NZDUSD opened in New York as the worst performing currency against the US dollar after losing 1.23%. The Japanese yen was the best performing currency, rising 0.19% on lingering safe-have demand.

USDJPY slid to 105.94 in before rebounding to 106.25 in early New York trading. Low US Treasury yields, JPY demand against the major currencies and safe-haven demand are weighing on USDJPY.

US/China trade tensions dominated market sentiment again, overnight. Yesterday, White House Advisor Larry Kudlow said they still expected to continue face-to-face trade negotiations in September, which gave a modicum of relief to markets.

Gold prices are up over 6.0% since the beginning of the month due to China/US tensions, but more impressively Bitcoin (BTCUSD) soared nearly 25% in the same period.

Chart BTCUSD 4 hour

Source: DriveMarkets

GBPUSD traded nervously with a negative bias in a narrow 1.2136-90 range. Prices continue to consolidate after hitting 30-month lows at the beginning of August, but gains are capped by “no-deal” Brexit fears. Weaker than expected UK House Prices also weighed on prices.

EURUSD peaked at 1.1219 in Asia and then drifted steadily lower, reaching 1.1180 in New York trading. Prices retreated as risk aversion fears ebbed, and slowing economic concerns came back into focus after the German Industrial Production Index plunged 1.5% m/m in June. (forecast -0.4%)

Oil prices are trading at last week’s low. WTI dropped from $55.34/b yesterday to $53.33/b overnight before climbing to $53.53 in New York trading. Fears of slowing global demand stemming from the US/China trade war undermined prices.  WTI is trading just above support in the %3.30 area, which if decisively broken suggests further losses to $50.00/b.

USDCAD smashed through resistance in the 1.3250-70 area, setting the stage for further gains to 1.3380. The rally is fueled by falling oil prices and rising expectations of a Bank of Canada interest rates cut.

Today, the Canada Ivey PMI index is expected at 53.0 compared to 52.4 previously. It is a second-tier report. A sharp deviation from the forecast may lead to a short-lived impact on USDCAD trading, as there is any other data in play, today.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish.  The decisive break above 1.3250 sets the stage for a re-test of 1.3420 on a break above 1.3325.  The intraday uptrend is intact while prices are above 1.3210, a level which is being guarded by support in the 1.3230-50 area.  For today, USDCAD support is at 1.3270 and 1.3250.  Resistance is at 1.3320 and 1.3380.  today’s Range 1.3270-1.3330

Chart: USDCAD  1 hour

Source:  Saxo Bank