• RBNZ kept it’s interest rate unchanged at 1.75% as was widely expected by the market. The accompanying statement had a rather dovish tone. Specifically, the monetary policy is to remain accommodating for a considerable time and inflation rate to reach 2% in 2020. Also, it was commented that the NZD rise was largely due to US Dollar move. Later on RBNZ Governor stated that he is quite comfortable with current NZD position and not concerned about it. Overall, we see the case for the outlook to weaken the NZD, as possible future rate hikes have been “pushed” further into the future.
• NZD/USD started the day in a sideways manner yesterday and dropped later on and during today’s Asian morning, as forecasted yesterday, breaking the 0.7250 (R1) support level, now turned to resistance. We see the case for the pair to continue to drop for a short while and stabilize later on. Should there be further selling orders, we could see the pair breaking the 0.7180 (S1) support level and aim for the 0.7417 (S2) support barrier. On the other hand should the pair find fresh buying orders we could see it breaking the 0.7250 (R1) resistance line and aim for the 0.7370 (R2) resistance hurdle.
All eyes on the BoE
• BoE is widely expected to remain on hold, keeping interest rates at +0.50%. Market has priced in the scenario with a probability of 98.58% (GBPOIS). The bank may want to retain flexibility ahead of the Brexit negotiations uncertainty, regarding the future rate hike path and hence avoid committing to any further rate hikes. We also see the case for forecasts of stronger growth and maybe lower inflation rates with a horizon of two years. We expect the overall effect of the voting, inflation report and inflation letter to be supportive for the GBP.
• Cable dropped yesterday and tested the 1.3875 (S1) support level. We could see the pair rising today, as mentioned in the fundamentals before. Should the bulls take the reins we could see the pair breaking the 1.4040 (R1) resistance line and aim for the 1.4168 (R2) resistance level. On the other hand, should the bears take the driver’s seat, we could see the pair breaking the 1.3875 (S1) support line and even the 1.3749 (S2) support zone.
As for today’s other economic highlights:
• During the European morning, we get Germany’s Trade Balance for December and ECB’s economic bulletin is to be released. As for speakers, German Buba President Weidmann, Dallas Fed President Kaplan, Philadelphia Fed President Harker and BoC governing council member Wilkins speak.
