FX Headlines: Loonie Jumps Following Bank of Canada Rate Decision
The Bank of Canada held its key interest rate on hold at 1.00 percent, noting that any further rate increases would fall in line with keeping prices pressures “consistent” at the “2 percent inflation target.” Nonetheless, Governor Mark Carney noted that some stimulus could be “eventually withdrawn,” sending the Loonie higher against all the other major currencies following the release.
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NZDUSD: The Kiwi continued its remarkable run in the overnight session, jumping to an all-time high against the U.S. Dollar, after gaining over 11 percent the past 3-months. A report showed that business confidence climbed to a 12-month high, from 14.2 in April to 38.3 in May. Accordingly, after the Reserve Bank of New Zealand was forced to lower interest rates to 2.50 percent following the earthquake in Christchurch, the antipodean economy has absolutely flourished, sending speculators into net-long positions exposing themselves to further Kiwi strength. In fact, the strength of the Kiwi has helped contained price pressures in New Zealand, similar to how a strong Loonie has tempered inflation in Canada. That being said, the Kiwi is likely to continue to appreciate, as if price pressures begin to build, the Reserve Bank of New Zealand will raise rates, attracting more capital inflows into the country.
Taking a look at price action, the Kiwi-Dollar has been moving essentially parabolic since mid-March, appreciating slowly but steady, from as low as 0.7108 on March 17 to an all-time high of 0.8262 today. The NZD/USD pair has yet to reach the necessary technical boundaries to consider the pair at an extreme positioning that one would call for a short play. The RSI is continuing to rise, at 69 now, just below the overbought level. The MACD Histogram is still trending higher, and looks yet to have peaked, with the differential now at 27. However, the Slow Stochastic oscillator looks to be near its apex, with the %K at 94, and the %D at 92. Still, even in the face of risk-aversion, the Kiwi has surged higher, and the only possible reason that the Kiwi would decline would be as traders take profits off the table following the NZD/USD pair’s incredible run. For now, it is hard to advocate fighting the Kiwi, despite how appetizing the current technicals appear.
Written by Christopher Vecchio, Currency Analyst
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