Sunday, November 2, 2014

Central banks and jobs on stage this week | Will the RBNZ intervene in the market?

There is a busy week in prospect for Forex. Apart from the fact that Friday sees the all-important Non-Farm Payrolls report from the USA, three of the most important central banks will deliver their monetary policy statements and interest rate decisions.

On Tuesday morning, early in GMT terms, the Reserve Bank of Australia (RBA) will make its announcement. While no change in rates is expected, it is known that the central bank is keen to reduce the value of the Aussie to assist exports, while its core rate, high by comparison to other jurisdictions but low historically, is working against that. One fear in reducing rates is that there will be a property bubble but a report out last night has indicated that residential property planning approvals have fallen by 11%, as against 1% expected, and the trend is downward. This could have a bearing on interest rate thinking.

Then, on Thursday, we will have both the Bank of England and European Central Bank (ECB) releases. No change in rates is expected from either of these, but the feeling out there is that the Bank of England could well be the first major central bank to begin to raise rates and the  market will be looking for clues as to when this might happen.

The ECB and, in particular, Mario Draghi’s comments in the press conference afterwards, will hopefully give some further insight into intentions for combatting low inflation, which is a bugbear of the ECB at present. Measures to deal with this state of affairs have the potential to weaken the Single Currency.

Will the RBNZ intervene in the market?

The chart at the top shows that the Kiwi, or New Zealand / US dollar pair, is approaching a significant support level. A report from currency analysts in the Bank of New Zealand (a private bank and not to be confused with the Reserve Bank of New Zealand, which is the central bank) contends that the only way for the Kiwi is down. In that regard, they wonder if and when the RBNZ will intervene again in the market. When they do sell Kiwis in order to weaken the currency, the authorities will attempt to do so at a time when this will have the greatest impact, so that they are spending their foreign reserves to the best effect.

Pushing the rate below the support level shown above would be expected to trigger the stop loss orders of those traders who are betting on a strengthening Kiwi. As stop loss orders on long trades are sell orders, this would amplify any lowering of the exchange rate that might be achieved. Let’s see what happens.

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