Kiwi Comes Under Pressure
On the back of some of the volatility we’ve seen over prior weeks, we were treated to a somewhat quieter session this week. Markets were far more contained as traders await fresh directional catalysts. However, there have still been some interesting moves to note and, chatting with traders this morning, it seems the main move capturing traders’ attention is the reversal in NZDUSD. The Kiwi has fallen back by around 2.5% from the intra-week highs, a move of almost 200 pips. So, let’s take a look at what caused this reversal and, as ever, if you caught it? Well done! If not? There’s always next week.
What Caused the Move?
Risk Sentiment Recoils on Hawkish Fed
The big market news this week has been the re-sharpening of focus on Fed tightening expectations. Comments at the start of the week from Fed’s Brainard, typically one of the more dovish members, seemed to catch markets off-guard. Brainard said that she felt the Fed would push ahead with a faster balance sheet run-off than we’ve seen in previous cycles, noting the need to stop inflation from running away.
These comments were then followed by a firmly hawkish set of March FOMC minutes. The minutes showed members’ support for commencing balance sheet run-off in May of $95 billion per month. Additionally, the Fed was seen discussing the possibility of larger-than-usual rate hikes with many members expressing support for using larger .5% hikes as necessary.
The minutes release in particular, fuelled a fresh buying spree in USD, weighing on risk assets and bringing NZD back under offer. The broader recoil in risk assets has also hampered NZD upside recently as news of further atrocities in the Russian invasion of Ukraine, as well as fresh western sanctions against Russia, increases uncertainty around the situation. With peace talks yet to produce a ceasefire, the conflict remains on going and hopes for a quick cessation of violence appear to have faded recently.
Technical Views
NZDUSD
The rally in NZDUSD over recent months has seen the market correcting higher within a tight bullish channel. However, price has been rejected at the test of the longer-term bearish trend line and is now testing support at .6836. The risk now is of the market turning lower still, in line with bearish MACD and RSI readings. The key area to watch now is the bull channel low around .6806, a break here will be firmly bearish, putting focus on a move back down to .6703 next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.