RBNZ joins the dovish parade RBNZ joins the dovish parade RBNZ joins the dovish parade

RBNZ joins the dovish parade

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  New Zealand's central bank waxed dovish overnight, stating now that direction of next rate move is most likely to the downside. This took the steam out of a hard charging kiwi, particularly jolting after a session in which the smaller currencies were heavily bid.

More whiplash for FX traders overnight (on top of the JPY cross churning we discussed yesterday in our latest Breakout Monitor) as the New Zealand dollar, after registering  a string of recent highs versus the AUD and pushing on a big resistance level against the US dollar yesterday, was pummelled by a dovish shift from the Reserve Bank of New Zealand, which joins its global cohorts in shifting guidance to the downside with the opening sentence of its new statement: “Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down”.

The size of the downward adjustment at the front end of the NZ yield curve – a whopping 12 basis points for 2-year rates as of this writing – suggests the market was duly impressed and this may be the end of the line for across the board NZD outperformance.

In general, however, the overall degree to which the Antipodeans weaken may have more to do with whether China’s economy is seen as responding soon to new stimulus efforts and whether global asset markets continue to celebrate an almost across the board dovish shift in dovish guidance. The AUD, after all, has maintained reasonable altitude since January in broad terms after the Reserve Bank of Australia’s own dovish shift.

Theresa May’s Brexit deal is now getting the support it couldn’t before, as hardline Tory Brexiters fear that it is her deal or a process that risks leading to no deal at all. Sterling is firm versus the euro and less than a percent from the recent highs for the cycle as the market games the odds of May’s deal versus “something else” that most likely means a softer Brexit or no Brexit. The question is still whether she has the votes, as the Northern Irish DUP’s latest comments suggest they still prefer a delay. See this BBC article  for a sense of the chaotic programme of votes and various directions the situation could take as parliament seeks a way forward. Time is getting short for May’s deal, as it must pass ahead of the weekend under the terms of the 2-week extension granted by the EU.

Subplots in sterling and NZD aside, our broad focus is on risk appetite as a major coincident indicator after the recent test of pivotal levels in the US S&P 500. Specifically, will the S&P 500 overcome its recent peak and have a go at the all-time highs, and will US interest rates continue to fall through the rest of this week’s huge Treasury auctions.

Yesterday’s 2-year auction saw very strong demand and today and tomorrow see 5-year and 7-year auctions, respectively. The “melt-up scenario“ would almost require that the long end of the curve stops seeing safe haven seeking and the recent minor back-u pin high yield credit spreads eases. But if the melt-up scenario does engage, we could see a weak G3 with the JPY leading the race to the bottom and strong EM. On the flip side, signs that the risk rally this week was just another treacherous head-fake would likely see the complete opposite, with USD and JPY firming the most. 

Trading interest

Selling NZD on upticks via long AUDNZD
Waiting for a view on the USD, but USDCAD rally has remains reasonably orderly for a first place to look at USD longs with stops below 1.3300. 


The RBNZ dovish shift is similar to the one made by the RBA in recent months and saw a loud rejection of the recent string of new lows below the 1.0400 and even 1.0300 levels. For this pair, the 1.0450 area looks important for the bears to maintain any case for maintaining a downside bias – and AU/NZ rate spreads suggest little hope for this, although rate spreads have been a poor tool almost across the board in recent months as a coincident indicator.
Source: Saxo Bank
The G10 rundown

USD – the greenback is standing rather tall here, about the middle of the range of last few weeks. Using Bloomberg’s dollar index as a measure, we are precisely at the middle of about a 4% range stretching back some nine months. 

EUR - the euro has really struggled for air this week after the weak Eurozone flash March PMIs at the beginning of the week that took German 10-year bund yields to a negative yield for the first time since 2016.

JPY – JPY crosses have apparently rebounded on strong risk sentiment, but there is plenty of dissonance with strong bond markets providing offsetting coincident pressure (lower yields in long US treasuries traditionally a strong support for JPY), as well as elevated spreads in credit and EM. Local pivot levels for USDJPY remain 111.00 and 110.00

GBP – sterling could lurch sharply higher on May’s deal achieving a miraculous success before the weekend, but the upside path could prove far choppier if the scenario drifts into a longer delay.

CHF – EURCHF is plumbing the lows of the cycle near 1.1200 on the struggling euro. 

AUD – some collateral damage here from the RBNZ dovish shift overnight, but can bears get anything going in AUDUSD, for example (where rate spreads have largely coincide with the price action due) with China maintaining a firm CNY? Weaker risk sentiment and concern that a weak, or no, US-China trade deal is perhaps the only rout to a weaker AUD versus JPY and USD again.

CAD – USDCAD a reasonable first place to look for USD rally continuation, having recently survived the 1.3300 test and after oil suffered a setback yesterday. A solid charge at 1.3600+ would require that global markets start to fret the global growth outlook again rather than finding solace in dovish central banks shifts.

NZD – this was dovish guidance that made quite a difference in the NZ yield curve and may finally spell the end of the run lower in AUDNZD, with firmer indication of this on a rally above 1.0500.

SEK – EURSEK is having a look lower, but to get full reversal through 10.40-35 zone, we’ll  need to see rays of hope from the Eurozone economy or for this story on fiscal stimulus to turn into something concrete (keeping more capital in Sweden and SEK if so). Sweden’s latest household lending survey is due today.

NOK – EURNOK has broken lower and Norges Bank is the outlier among central banks, having just  hiked rates, but a stronger NOK still needs a boost from risk appetite and oil prices.

Upcoming Economic Calendar Highlights (all times GMT)

0800 – ECB President Mario Draghi to speak
0830 – Sweden Feb. Household Lending survey
0830 – Sweden Feb. Trade Balance
0830 – Sweden Riksbank minutes
0845 – ECB Chief Economist Praet to speak
1230 – Canada Jan. International Merchandise Trade
1230 – US Jan. Trade Balance
2300 – US Fed’s George (Voter) to speak

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.