Chart of the Day NZDUSD

Potential Intraday Impulse NZDUSD

The RBNZ left rates on hold as expected but the statement was seen as less dovish and NZDUSD rallied ~1% through 0.6450 to a high of 0.6477. The statement noted the positive impact of previous monetary easing (-75bps last year), fiscal easing (the govt’s announcements in December and stronger outlook for govt investment) as well as high terms of trade. That rules out the need for an insurance cut right now and wrong-footed markets that were discounting 30% chance of a cut by the next meeting. The MPC assumes the overall economic impact of the coronavirus “will be of short duration, with most of the impacts in the first half of 2020”. They note “there is a risk that the impact will be larger and more persistent” but that “monetary policy has time to adjust if needed as more information becomes available”

Global risk appetite remained supported overnight as Fed Chair Powell affirmed that the current monetary policy stance will support continued growth, a strong labor market and inflation returning to 2% but noted that the Fed is closely monitoring the coronavirus outbreak which “could lead to disruptions in China that spill over to the rest of the global economy” Powell’s testimony at the House committee did little to shift market expectations on the Fed’s rate trajectory. Markets expect the Fed to be on a holding stance in the coming meetings, but with an easing bias that may accelerate in 2H 2020

From a technical and trading perspective, the NZDUSD has witnessed a surge higher overnight driven by the perceived hawkish hold from the RBNZ, which prompted a short covering. The subsequent price action looks constructive on the intraday time frame demonstrating impulsive qualities which suggest that the current advance should meet resistance towards the .6500 level before an overlapping corrective pullback offers and opportunity to play for a second leg of corrective upside if buyers remerge around .6430/50 targeting an equality move to test offers and stops above the .6550 area in coming sessions.

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