Daily Analysis | 09 November 2017
The RBNZ kept its policy unchanged yesterday, as was widely anticipated, while the tone of the accompanying statement was more optimistic than previously. Policymakers softened even further their language on the Kiwi, noting that the exchange rate has eased since the August meeting and that if sustained, this will boost inflation and promote more balanced growth. They also incorporated into their forecasts preliminary estimates of the impact of new government policies, such as raising the minimum wage, which is seen as potentially inflationary developments. Perhaps most importantly, the Bank brought forward the timing for the first planned rate hike in New Zealand to Q2 2019, from Q3 2019 previously. The Kiwi surged on the decision, and in the absence of any trade-related headlines, we think that it could continue to recover for a while.
NZD/USD traded higher during the Asian morning Thursday following the RBNZ rate decision, but the advance was stopped by the upper bound of the downside channel that has been containing the price action since the 20th of September. The fact that in the last days of October, the pair rebounded from near the crossroads of the channel’s lower bound and the lower end of the longer-term wide sideways range between 0.6830 (S2) and 0.7400 keeps the door open for the pair to continue trading north for a while. Nevertheless, we stick to our guns that we would like to see a clear close above the upper bound of the aforementioned downside channel before we get confident on further advances within the larger sideways range.
- Support: 0.6940 (S1), 0.6880 (S2), 0.6830 (S3)
- Resistance: 0.7000 (R1), 0.7050 (R2), 0.7120 (R3)
Brexit negotiations in the spotlight once more
Today, British negotiators are set to return to Brussels for the sixth round of Brexit negotiations. The key topics of discussion will be the divorce bill, the rights of EU and UK citizens, and the Irish border. In our view, this is a crucial stage in these talks, as any further delays in settling these preliminary issues could lead to continued delays in more important matters, such as working out a transitional deal and discussing the future trade relationship. With regards to the British pound, any signs that the divorce bill will be settled soon could lead to a rebound in the currency, we think, on speculation that the Brexit process may finally begin to move forward. On the other hand, signals that the two sides are still far from settling the bill could bring sterling under renewed selling interest.
EUR/GBP edged north yesterday after it hit support near the 0.8800 (S1) support level. Nevertheless, the recovery was stopped at 0.8860 (R1) and then the rate retreated somewhat. The pair has been trading in a sideways range between 0.8750 (S2) and 0.9020 since the 12th of September and thus, we consider the short-term outlook to be neutral for now. That said, a lot of this pair’s forthcoming wave will depend on the resumption of the Brexit negotiations. Any progress in these talks could benefit the pound and thereby, cause the pair to slide back below 0.8800 (S1), something that could pave the way for the important zone of 0.8750 (S2). On the contrary, further delays could prove the trigger for another leg up. A break above 0.8860 (R1) could set the stage for extensions towards our next resistance of 0.8935 (R2).
- Support: 0.8800 (S1), 0.8750 (S2), 0.8715 (S3)
- Resistance: 0.8860 (R1), 0.8935 (R2), 0.8975 (R3)
As for the rest of today’s highlights:
During the European morning, Germany’s trade balance for September is due out.
From the US, we get initial jobless claims for the week ended on the 3rd of November.
We have two speakers on the agenda: SNB Chairman Thomas Jordan and ECB Executive Board member Sabine Lautenschlager.