The NZD traders were today caught unsurprised as the RBNZ inflation expectations q/q came in lower than previously as expected at 1.6% (previous quarter 1.9%), this is not surprising given the dollars lack of movement in the previous quarter and the fall in oil prices which has had a significant impact on the energy sector. What it does mean now is that the RBNZ has the mandate to lower interest rates even further in an effort to stimulate the economy as the global downturn from emerging markets has an impact on the NZ economy. Looking at the state of the economy and the dovish tone from the RBNZ it looks certain that we could see a 25 basis point rate cut in the next few months as all of NZ's largest neighbours continue to suffer.
On the charts the NZDUSD has so far remained somewhat bullish as it sticks to the current bullish trend line in play on the daily chart. What is key here is if it can be sustained after today's inflation expectation as the bears may now look to certainly strike and push the NZD lower on the charts and even break the trend line. If we do see a break down we could see it fall even lower to support at 0.6459. The market will be reluctant to give up the gains it has achieved in the previous month, but with a rate cut on the horizon I feel that the highs we have seen are not likely to be seen for some time unless we see a large amount of weakness in the USD.
Oil markets have as predicted had a roller coaster day as the it once again looked to break out of its bearish trend but was swatted back by some aggressive selling late in the day. For me oil has been very much hit and miss as of late when it comes to bullish moves. With some buying looking more like unwinding of positions at times, but in reality we are just seeing tighter and tighter waves which indicates we may be nearing the bottom of the trend soon enough.
For me the real support level continues to sit at 24.74 which is where the market is likely to find the most volatility and we may see the market start to actually crunch. Additionally the market failed to break the 20 day moving average and close above it, which still points to internal weakness here for traders convinced of bullish movements. Obviously, in the long run oil prices will pull back up higher, but for now I still feel the bears are very much in control and are looking all the more aggressive these days when given half a chance.
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