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Federal Reserve Leaves Interest Rates Unchanged, Maintains Monthly Asset Purchases

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  • Update - gold extending its rally to session highs as the US Dollar continues to slide following this comment from Powell. The Fed Chair also stuck to his transitory inflation script during the presser. Meanwhile, real yields just hit new all-time lows. $GLD $DXY $XAUUSD https://t.co/GEpIKpttUs
  • Indices Update: As of 20:00, these are your best and worst performers based on the London trading schedule: Wall Street: -0.00% US 500: -0.02% France 40: -0.09% FTSE 100: -0.13% Germany 30: -0.15% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/3OyFlMWOIP
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  • Fed's Powell: - No sense of panic in regard to inflation - I do not believe wage increases are causing price inflation
  • Fed's Powell: - High inflation prints not "what we were looking for" - Spike in inflation driven solely by supply side shock
  • Fed's Powell: - We expect RRP activity to remain elevated - Repo facilities performing as expected
  • Fed's Powell: - MBS and tapering were brought up by a number of FOMC participants - We will taper both (MBS & Treasuries) at the same time most likely
  • Fed's Powell: - Strong capital requirements are a "must" for banks, especially the largest banks - Capital requirements allow banks to continue to perform during severe downturns
  • The July FOMC press conference is hammering home this point: the labor market mandate is now on equal footing with the inflation mandate (which is atypical); and Powell is now making the case that the labor mandate is *more important* to normalization than the inflation side. https://t.co/saAmTwpTRw
Spot NZD/USD Price at Risk Ahead of RBNZ Meeting, Rate Cut

Spot NZD/USD Price at Risk Ahead of RBNZ Meeting, Rate Cut

Rich Dvorak, Analyst

NEW ZEALAND DOLLAR & RBNZ MEETING – TALKING POINTS

New Zealand Dollar currency traders are gearing up for heightened spot price action judging by the latest readings on NZDUSD overnight implied volatility. The measure spiked to 15.62% which is the fourth highest reading of the year and more than double its average over the last 12 months.

Elevated expectations for NZDUSD currency volatility is unsurprising, however, considering major event risk posed by Wednesday’s looming interest rate decision from the Reserve Bank of New Zealand (RBNZ) slated for 2:00 GMT. According to overnight swaps, the RBNZ is expected to cut its benchmark interest rate by 25-basis points at its upcoming meeting and another 25-basis points before year-end.

SPOT NZDUSD PRICE CHART: DAILY TIME FRAME (JANUARY 25, 2019 TO AUGUST 06, 2019)

Spot NZDUSD Price Chart Technical Analysis Ahead of August RBNZ meeting

Judging by NZDUSD’s overnight implied volatility reading of 15.62%, currency traders might expect spot prices to range between 0.6473-0.6579 with a 68% statistical probability. The lower bound of the 1-standard deviation trading range rests beneath the year-to-date low for spot NZDUSD which could be tested if the RBNZ confirms the market’s expected interest rate cut currently priced in and provides dovish outlook.

That said, the 0.6500 handle could offer a bit of support considering spot NZDUSD has inked a series of higher lows since bottoming out in May. Conversely, a move to the upside in spot NZDUSD might be sparked if the RBNZ provides more measured forward guidance and relatively hawkish commentary. Aside from the August RBNZ meeting which falls on Wednesday’s trading session, central bank governor Adrian Orr will also testify to New Zealand Parliament at 20:10 which could reveal additional insight on the economy and future monetary policy decisions.

NZDUSD – IG CLIENT SENTIMENT INDEX PRICE CHART: DAILY TIME FRAME (FEBRUARY 07, 2019 TO AUGUST 06, 2019)

New Zealand Dollar Price Chart and Client Sentiment Ahead of August RBNZ

According to IG Client Sentiment data, 79.3% of spot NZDUSD retail traders are net-long resulting in a long-to-short ratio of 3.84. Also, the number of traders net-long is 13.2% higher than last week whereas the number of traders net-short is 52.5% lower than last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests spot NZDUSD prices may continue to fall.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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