OPENING COMMENT
More of the same price action into Thursday with no relief seen just yet for the buck as most of the major currencies are higher since the open. The latest event risk in the form of the RBNZ was no surprise, after the central bank left rates unchanged at 2.50%. While there are some signs of optimism, no hikes are now expected until the end of Q2 2010, and Governor Bollard has also made it quite clear that he is uncomfortable with the appreciation in the NZD. We are therefore somewhat surprised with the ability for the currency to remain bid throughout the session, trading just under 0.7000. Perhaps some of the relative strength in Kiwi is more a function of cross related flows, with Aud/Nzd getting hit hard thus far, after the weaker than expected employment numbers out from Australia. The Australian Dollar is one of the only major currencies to track lower against the greenback thus far on Thursday.
Looking ahead, the European calendar is light with only some second tier data due out from the various Eurozone economies. Key event risk comes later in the day in the form of the Bank of England rate decision due at 11:00GMT. However, rates are expected to remain on hold at 0.50% and the event is not expected to generate much volatility on its own. Instead, broader cross market flows and themes will dominate a session which could be very interesting on the price action side. Global equities are slightly bid, while commodities are higher, mostly led by oil.
THOUGHTS…
In our opinion, while there still may be some more room for USD weakness today, we do not see the Dollar getting beaten down much further. Technical studies are looking stretched and price action is looking more and more out of line with fundamentals. We remain firmly USD bullish in our thinking, with the view that the buck now stands to benefit in any market environment. A return to instability and uncertainty will undoubtedly result in some safe-haven USD buying, while more importantly, any signs of recovery within the global markets, should start to have a positive impact on the Dollar. Central banks are starting to talk of exit strategies and rate hikes. With interest rates where they are in the US, it is clear that the shift to a tightening bias will be quite aggressive when in fact it does transpire. This should start to narrow yield differentials back in favor of the USD and ultimately once again allow the greenback to benefit in good times as well.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel’s reports in a more timely fashion, e-mail [email protected] and you will be added to the “distribution” list.
Visit the DailyFX Forex Stream for Real-Time News and Market Updates