Hawkish rate hold from RBNZ + more coronavirus optimism leads risk sentiment higher again

SUMMARY

ANALYSIS

USDCAD

Global markets are getting a double-dose of risk-on catalysts today and the headlines all started around the 8pmET hour last night.  The Reserve Bank of Zealand kept interest rates on hold, but surprised traders by upgrading their economic outlook, by downplaying the impact of the coronavirus and by raising their OCR projections.  More here from Reuters.  This saw NZDUSD shoot higher, taking AUD and CAD along with it.  China’s National Health Commission then reported another daily decline in the number of new coronavirus cases to just 2015 for February 12^th versus 2,478 from February 11^th, marking the lowest daily increase in infections since January 30th.  We could argue these new statistics are misleading given how the definition of what constitutes a “confirmed case” conveniently changed just a few days ago, but this news put a bid under the Chinese yuan nonetheless and helped risk sentiment further in Asia.

European traders jumped onto the broader risk-on wave as well, amid a lack of local headlines, and we’re still seeing markets in a rather good mode to start NY trade.  Equity futures, crude oil prices, US yields and USDJPY are all trading higher, while a broadly weaker USD against commodity currencies drags USDCAD into the 1.3240-60 chart support zone.

OPEC has just slashed its 2020 oil demand forecasts by 230k barrels per day to 990k bpd, citing the coronavirus impact on Chinese demand, but oil traders aren’t reacting much to this news as you could argue it's been largely anticipated.  The American Petroleum Institute reported a bearish weekly inventory report last night (+6mln barrels vs +3mln expected), which is worthy of attention, but this has been long forgotten now amid today’s new wave of “viral optimism”.  The EIA reports its weekly inventory figures at 10:30amET this morning, with traders expecting a 2.987mln build.

Jerome Powell will be delivering the Fed’s semiannual Monetary Policy Report to the US Senate Banking Committee this morning as 10amET, but traders are not expecting much of anything given his 3hr snooze fest before the US House Financial Services Committee yesterday.  The Fed chairman said a lot of things we already know; namely that the US economy is still in a “good place”, it’s too early to determine the impact of the coronavirus, and that they’ll continue to intervene in the repo/t-bill markets until mid-2020.

We think today's USDCAD price action will be focused on the 1.3240-60 support zone and we think recent buyers need to show up again here to defend the market's new uptrend.

USDCAD DAILY

USDCAD HOURLY

MAR CRUDE OIL DAILY

EURUSD

Euro/dollar continues to meander in the low 1.09s this morning as Powell’s remarks yesterday revealed little new information on the monetary policy front.  Odds are we’ll hear the same narrative this morning when the Fed chairman speaks before the US Senate Banking Committee.  We also have almost 2blnEUR in options expiring between the 1.0900 and 1.0920 strikes at 10amET, which we think is contributing to the market’s sluggish tone.

EURUSD HOURLY

APRIL GOLD DAILY

GBPUSD

Sterling closed NY trade yesterday smack in the 1.2950s and while this wasn’t a confirmed bullish close in our opinion, the broad USD selling that followed the RBNZ’s hawkish hold to interest rates last night was enough to keep GBPUSD bid throughout Asian trade.  The broader improvement in risk appetite was apparent in early European trade today as well, and we think this helped the market extend higher. 

Chart resistance in the 1.2980s is the sticking point now for traders however as NY trade gets underway.  Some better than expected UK data saved GBPUSD yesterday, but we think the market’s daily chart structure still remains technically weak so long as we stay below the 1.3050s.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Aussie is getting another boost today, but this time from its antipodean cousin -- the New Zealand dollar.  The surprisingly upbeat tone to the RBNZ’s outlook last night lit a fire under NZDUSD at 8pmET and it took AUDUSD up along with it.  We’ve seen time and time again how big moves in the Kiwi can influence the Aussie and last night’s price action was another prime example.  AUDUSD now sits at chart resistance in the 0.6740s as traders watch the broader USD tone heading in Powell Round 2 this morning.  This week’s coronavirus optimism and now some hawkish RBNZ commentary has halted the market’s downward momentum, but we’d be wary of creating a new bullish thesis until we see some firm NY closes above the 0.6770s and indications that the USD rally is breaking down across the board.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

It looks like dollar/yen made a run for some buy stops above the 110.00 figure during the London AM today and, the more we think about it, we think this flow driven move can explain part of broader market’s willingness to continue the risk-on move that started in Asia last night. 

The market has since pulled back off trend-line resistance in the 110.10s and it seems like Japanese exporter offers were present, according to Reuters.  Their IFR coverage today noted “whales” like Toyota and GPIF (big local market participants) with resting orders on both sides of 110.00.  Odds are this is where the market will sit for the next little while as well as over 1.2blnUSD in options expire at the figure.

USDJPY DAILY

USDJPY HOURLY

US 10YR BUND YIELD DAILY

Charts: Reuters Eikon

About the Author

Erik Bregar - Director, Head of FX Strategy

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

Interested in creating a custom foreign exchange trading plan? Contact us or call CXI's trading desk directly at 1-833-572-8933.