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Chart of the Day: NZDUSD

The week ahead features plenty of macro event risk for currency traders – and the Reserve Bank of New Zealand’s (RBNZ) interest rate decision on Wednesday is certainly a key one to watch.

NZDUSD

The week ahead features plenty of macro event risk for currency traders – and the Reserve Bank of New Zealand’s (RBNZ) interest rate decision on Wednesday is certainly a key one to watch. Where the gloomy outlook for NZDUSD is potentially set to continue ahead of Wednesday's rate decision.

Softer labour market numbers amid other uncompelling data points have lifted market pricing for a cut nicely above 50%. However, a better feel on the US-China trade war has reduced the implied cut to 64%. This fits nicely with the economist’s call, with 12/18 economists also calling for a 25bp cut.

It's worth noting that NZD implied volatility is the highest for G10 currency pairs at 8.4%. Given the data, and that this is the last meeting of the year, there is a good chance the RBNZ will cut rates from 1.00% to 0.75%. In the less likely case, they don’t, the door will be wide open for an early 2020 cut. That slight unease, and will they/won't they is keeping implied volatility elevated.

The NZDUSD pair had a strong upward run from the major low on 1 October, with a robust uptrend over the past six weeks. Last week’s sell-off broke below the 21-EMA from 4 November highs, indicating the market is pricing for a rate cut. The key Fib 50% retracement (of the October to November rally) coincides with a natural support band seen between 0.6330 and 0.6282. So, at least in the short term, we await and position ourselves for the fundamentals and the insights the central bank offer.

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