RBNZ Dishes Up Dovish Guidance

The US S&P500 touched a new high today, but was unable to hold the new level into the close, resulting in a bit of a dip in risk appetite later in the trading session, and thus a dip in the commodity currencies. The biggest mover across markets, however, was gold which notched a chunky $17 dollar loss on an unknown catalyst.

RBNZ

New Zealand is so far east that they've already started their Thursday well ahead of the close of the New York. The RBNZ decided not to decide on anything new and kept rates at 2.50% as expected. They also left the rhetoric regarding the timing of the first hike at an unspecific "around the middle of 2010". In addition, the RBNZ's Bollard said that the recovery was likely to lack teeth and was generally very cautious and hedged. He indicated that the New Zealand housing market is "less of a concern". Perhaps most dovishly, Bollard said the rate rises for the coming tightening cycle are unlikely to be as rapid as in cycles past. NZD rushed southward on the news and AUDNZD rallied from the key support area (and slightly lower actually) after the announcement. The RBNZ's Bollard's performance is likely to keep a lid on NZD for a while.

Chart: NZDUSD

A squeeze in NZDUSD today ahead of the RBNZ that took the pair exactly to the 55-day moving average before it turned south again in the wake of the RBNZ's dovish guidance. This sets up an important technical hurdle to the bulls. To the downside, the pair has not held below 0.6900 for any length of time.

GBP

The pound was beaten down again today on the manufacturing data we mentioned earlier, but also as the FSA came out requiring new, even stricter stress tests on banks than the last time around to ensure that their capital ratios could withstand another crisis.

JPY and US t-notes

A speed bump was thrown up in front of the JPY crosses today as the $21 billion US treasury auction of 10-year notes went off very well and thus saw yields easing lower after touching new 7-day highs. USDJPY tried at new highs above the 55-day moving average, but pulled back on the auction results (highest bid to cover ratio on record), so that resistance level is still in place.

AUD

Aussie was again torn in two directions today, first rising very sharply as risk appetite rallied, but then hit by the massive drop in gold prices perhaps as well as a gyrating equity market late in the day and possibly also the upcoming Australian employment report tonight.

Chart: EURAUD

Hmm...Is this a sign of a new resistance to further strengthening in the Aussie after today's nice hammer reversal? The Australia employment report is likely to provide the answer. EURNZD is perhaps an even more interesting contrarian pick in light of the RBNZ outcome.

Looking ahead

Interesting to see another reversal of fortune (in most risk appetite-sensitive pairs) today in a week that has so far been all about reversals. Will tomorrow see follow up confirmation of this weakish close in AUD and CAD and especially NZD, or just more noise and indecisiveness? Watch out for the Chinese data out tonight. Tomorrow features the SNB rate decision and the US trade balance

Saxobank

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