FX Update: RBNZ's big rate chop. Majors quiet after the storm

FX Update: RBNZ's big rate chop. Majors quiet after the storm

Forex
John J. Hardy

Chief Macro Strategist

Summary:  RBNZ surprises with a larger than expected rate cut. Elsewhere, the major currencies trade nervously after the recent volatility storm and bond yields continue to plunge.


Trading interest

  • EURCAD short idea stopped out quickly – traders worry BoC could join easing parade after RBNZ?
  • Long AUDNZD on dips now with stops below 1.0400 for 1.0625 and eventually 1.0700

Yesterday’s reasonably exuberant market bounce after Monday’s bloodletting across equity markets has faded slightly overnight, even as the CNY fixing was below the middle of yesterday’s trading range and amidst various reports that Trump still wants a deal, his recent tariff threats and stern rhetoric notwithstanding. Yesterday we discussed the risk that the reaction to Trump’s new tariff threat and China’s taking the CNY beyond 7.00 to the USD could quickly fade if the latter move bogs down with no further progression, and Chinese sources have reassured that they want to keep the CNY stable. One view circulated is that China is playing the role of Trump’s wing-man in pressuring the US Federal Reserve to continue chopping rates as this will in turn reduce pressure on USD funding into China. Still, there is plenty to fret with concerns of a global slowdown also vying for negative attention.

Meanwhile, the ongoing vortex in bond yields – spike in bond prices – is the most remarkable market development and the risk off has begun spreading a bit more into corporate credit and emerging market credit, if still in lagging fashion in recent days.  General risk conditions are important to track for EM traders in particular after the strong run-up in many EM currencies this year. Elsewhere, it is interesting that USDJPY hasn’t been able to punch through to a new low here as bonds were bid strongly yet again yesterday – even as gold punched through to new highs.

The currency war theme saw added traction as the RBNZ overnight made the strong point that it doesn’t want to get caught holding the bag, as Orr and company chopped rates 50 basis points rather than the expected 25, taking the NZ OCR rate in line with Australia’s main rate. At the ensuing press conference, Governor Orr made clear that further rate chops may be on the table. One wonders if Mr. Orr has had his eye on the range lows in AUDNZD when making this decision. See  more on the RBNZ decision from our Eleanor Creagh.

Chart: AUDNZD

After sliding lower on concerns that China’s economic woes from the trade showdown hit Australia worse than New Zealand (and as the RBA’s cutting cycle has led the RBNZ’s slightly this year), AUDNZD jolted to life in the wake of the RBNZ meeting overnight, which has drawn a line in the sand on the charts here and points to the upside of the zone to 1.0700, probably as long as the RBNZ can out-dove the RBA.

Source: Saxo Bank

The G-10 rundown

USD – the greenback hanging in there and then some against the riskier corners of the G10 – up smartly against all three of the commodity dollars overnight. Key for the broader picture is whether the USD weakening within the G3 sticks here.

EUR – the single currency broadly firm recently, but not sure where the catalyst is for something more profound to support besides the ongoing unwinding of carry trades after recent unsettling events.

JPY – disappointing for JPY bulls here that the new lows in major yields have not yet provided better traction for the yen – but signs are that Japan’s economy is beginning to falter as well, with the June Leading Index release overnight showing another new low and lowest since 2010. Alas, USDJPY focus lower until/unless the pair rebounds back above 107.50-108.00.

GBP – sterling losing ground again and EURGBP trading up in the last shreds of the range below the post-Brexit high near 0.9300 with nary a sign of a breakthrough, and the FT reported yesterday that the EU doesn’t even want to negotiate “mini-deals” the UK has proposed to soften the impact of a No Deal.

CHF – EURCHF rebounding back above 1.0900 but needs to bounce well above 1.1000 to suggest the slide can be arrested.

AUD – the Aussie getting some relief from the recent pounding as the focus switches to the kiwi overnight and relative value traders give the AUDNZD a thought or two after the RBNZ made its mark. Still, broadly speaking downside risks on exposure to China as tensions simmer – especially now that Australia’s chief export – iron ore – is in steep retreat and suffered another bid sell-off overnight.

CAD – the RBNZ move overnight seems to have inspired CAD selling in sympathy with NZD selling as the market begins to suspect that any DM central bank with a positive policy rate will lurch into an aggressive cutting regime to join the currency war theme (2-year CAD swaps plunged some 12 basis points yesterday). USDCAD trading at last local resistance levels ahead of today’s Ivey PMI near the 200-day moving average.

NZD – RBNZ has made its mark and planted its flag at the bottom of the AUDNZD range – market will be reluctant to buy NZD, expecting a symmetric sabre rattling from the RNBZ on any kiwi strength – room higher now for AUDNZD (finally).

SEK and NOK – market doesn’t like the thinly trade currencies here, the Riksbank and Norges Bank forecasts of further policy normalization notwithstanding – watching those range extremes in EURSEK (10.85) and EURNOK (10.00+) for next steps.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1330 – US Fed’s Evans (Voter) to Speak
  • 1400 – Canada Jul. Ivey PMI
  • 2010 – New Zealand RBNZ Governor Orr at Parliament Select Committee
  • 2130 – Australia RBA’s Bullock to Speak
  • 2301 – UK Jul. RICS House Price Balance
  • 2350 – Japan Jun. Current Account Balance

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992