Tomorrow (Wednesday) will bring the
monthly interest rate decision and monetary policy statement from the Reserve
Bank of New Zealand (RBNZ). Since the start of the month, as seen on the daily
chart above, the Kiwi has been resilient, grinding its way up from the low
established at the end of last month.
Graeme Wheeler and his colleagues at
the NZ central bank will not like that. Mr. Wheeler has proved adept at talking
down (jawboning) the NZ unit to lower levels, as he believes it is far too high
for the good of the domestic economy. While talking down the currency is
subject to the law of diminishing returns, as central bankers everywhere from
Switzerland to Australia have discovered, the NZ central bank has proved itself
well able to enter the market and spend from its reserves in order to depress
the currency. There is no reason that they will not repeat both measures,
jawboning and intervention, this time round. It is also possible that they will
announce that interest rates rises have stopped for the foreseeable future. All
this would be calculated to cause the downtrend in NZDUSD to resume.
US
dollar sentiment is strong
The two-day Federal Open Market
Committee meeting in the USA begins later today and tomorrow we will have an
announcement on interest rates and policy. This is widely expected to include
the formal end of Quantitative Easing (QE) in the US. In anticipation of this
the US dollar has been strengthening against all its major counterparts.
The EURUSD pair got a small lift
yesterday, on the back of relief that the bank stress tests passed off with
such relative ease (apart from Italian institutions). However, the tendency of
the Single Currency against the greenback is resolutely to the downside, with
some commentators, notably Goldman Sachs, forecasting significant decline.
Using Elliot Wave analysis on the US dollar index, and projecting the findings
to the Single Currency, they see the possibility that EURUSD will be just
above1.20 in the not-too-distant future. It is now at 1.27.
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