RBNZ fails to deliver, Riksbank boosts SEK RBNZ fails to deliver, Riksbank boosts SEK RBNZ fails to deliver, Riksbank boosts SEK

RBNZ fails to deliver, Riksbank boosts SEK

Forex 5 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  The RBNZ failed to deliver the dovish shift the market was looking for, but not looking for this to encourage a large follow on move. Today’s Riksbank sets the tone for SEK at pivotal chart levels.


The risk appetite resurgence is the overarching theme here, with the latest headlines boosting hopes that a US-China trade deal is imminent and even if not, US President Trump has promised to extend the March 1 deadline if a deal is close. Additionally, Congress and Trump may even be close to a deal for border funding that would avoid a fresh government shutdown, which becomes too politically toxic for both sides if allowed to extend. 

At this point, the market’s expectation for this trade deal – if that is what we are seeing – have stretched beyond what the negotiations can deliver. (We suspect a bear squeeze, benchmark chasing and CTA flows in a relatively thin market are very significant factors for the risk appetite resurgence, as the macro news is not improving.) By the time we get to an eventual deal announcement, it may soon prove a sell-the-fact setup. For now, the remarkable thing from our point of view is how well the USD has held in there over the later stages of this rally and keeps our view of the greenback positive for now until proven otherwise, particularly against the euro.

The Reserve Bank of New Zealand surprised the market’s heavy lean for a dovish statement with a far less dovish shift than expected, as the statement retained a tightening bias, even if the expectation for that next rate rise was pushed out to after 2020. 

The RBNZ admitted it might have to cut rates, but retaining the tightening bias was enough to disappoint the NZD bears, who quickly flushed their shorts as short NZ rates backed up higher. We suspect this meeting is a mere delay to the eventual broad downside risk for the NZD. The first order of business will be watching whether AUDNZD can remain below 1.0500 for a sense of its relative strength.

The Riksbank is out with its latest decision and policy statement just as I am writing this report. It slightly marked down 2019 growth expectations to 1.3% from 1.9% and interestingly, has dropped its mandate for FX intervention (hardly necessary when the market has been aggressively devaluing its currency already). 

On the policy outlook, the RIksbank maintains the forecast for gradual policy tightening that looks like rank fantasy if the eurozone is tilting into recession later this year, where Sweden can only follow, with its economic downside compounded by a massive housing bubble. Hard to gauge what to do here – the decision and stance is hawkish relative to a very weak currency, but we don’t like the setup for the Swedish economy. Around 10.34 on EURSEK the stress-test level for a bigger turnaround in the SEK’s fortunes. Governor Ingves press conference up later at 10:00 GMT.
 
Chart: NZDUSD

NZDUSD backed up sharply overnight in sympathy with New Zealand rates at the front end of the curve doing likewise. It was no help to the NZD bears to have the backdrop of resurgent risk appetite and nearly parabolic gains in Chinese markets. Not expecting a significant follow through higher here for NZD.
Source: Saxo Bank
The G10 rundown

USD – as we discuss above, the greenback has held in remarkably well despite the resurgent optimism in global markets and hopes for a US-China trade deal. Latest CPI data up today but the market is looking elewhere.

EUR – a weak backup in EURUSD despite the disappointment of the 1.1300 break not holding. We continue to focus lower on the weak EU growth outlook.

JPY – the yenis  running away to the downside in broad terms against other currencies on the ongoing meltup in risk appetite – would suspect that when this ends, the JPY is the highest beta trade on a shift back to more cautious sentiment. Interesting resistance approaching in USDJPY above 111.00 in the form of the 200-day moving average.

GBP – UK CPI up today, but not the chief focus here, as we await Brexit developments that many sources suggest may come painfully close to the March 29 deadline as Theresa May could use the time factor to achieve maximum leverage for a parliamentary vote on whatever she can agree with EU counterparts.

CHF – the franc is responding to the resurgence in risk appetite and weakening sharply yesterday – suddenly back near resistance and the 200-day moving average in EURCHF. USDCHF is also eyeing the last shreds of resistance into the 1.0100+ high of the cycle, the highest level since early 2017.

AUD – the Aussie is backing up a little in sympathy with the kiwi resurgence overnight, but we still prefer to look lower If the price action remains south of 0.7200. Next week’s Reserve Bank of Australia minutes could prove interesting if we are looking for a solid break below 0.7000.

CAD – USDCAD is retracing, but has a further work to do to reject the latest bullish reversal. Still, the resurgence in risk appetite and oil prices are making life uncomfortable for USDCAD bulls. A January home price index up later today out of Canada. 

NZD – this RBNZ meeting was one-off supportive and Governor Orr already has a chance tonight to spin the central bank’s decision in an appearance before a parliamentary committee. Our benchmark for the NZD relative strength is AUDNZD, where the outlook is lower if the move overnight sticks – still some range to work with towards parity.

SEK – Riksbank just out now – an interesting exercising in clapping its hands over its eyes and ears and insisting on a cautious normalisation schedule on the ongoing strength of the Swedish economy (despite massive red lights) while dropping the mandate for FX intervention. This is clearly kneejerk SEK supportive, but doesn’t tell us what Riksbank policy looks like if the eurozone tilts into recession and Sweden likewise, with a housing bubble already in full unwind.

NOK – EURNOK looks to be a sell again given the risk backdrop and resurgent oil prices as long as we remain below the spike highs from Monday. 

Upcoming Economic Calendar Highlights (all times GMT)

0930 – UK Jan. CPI
1000 – Sweden Riksbank’s Ingves Presser
1330 – Canada Jan. Home Price Index
1330 – US Jan. CPI
1530 – US Weekly Crude Oil / Product Inventories
1910 – New Zealand RBNZ’s Orr before parliament
2000 – New Zealand Jan. House Sales
2350 – Japan Q4 GDP
0001 – UK Jan. RICS House Price Balance
 

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/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 Markets 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.