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The RBNZ hiked rates by 25 basis points this morning, however this was largely in the price, with the swaps market pricing in an 86% probability. The market is clearly long NZDs and had been expecting a slight pause anyhow, with the consensus calling for the bank to raise again in December. In fact, the narrative we heard from the RBNZ suggests that it may not raise at all, detailing that the economy appears to be adjusting to tightening and that it is prudent to have a period of assessment on rates. It went one further and said the levels of NZD were unjustified and that the NZD could have big falls. I have been looking at long AUD/NZD trades in ‘one to watch’ this week and the pair is now looking to test 1.10.
I was stopped out of my potential short AUD/CAD trade on Tuesday after we saw a daily close above the 38.2% retracement of the recent sell-off. The stronger-than-forecast Australian CPI (trimmed mean) yesterday saw a reasonably sharp adjustment on rate cut expectations, with the swaps market pricing in rate cuts this year. Technically the pair is now at a key juncture, with price testing the downtrend drawn from the April high. Momentum indicators are pushing higher, but a turn in these oscillators could suggest this trend line could hold and shorts could be warranted.
I looked at potential long USD/CAD trades on July 15 and after a positive start the pair now seems to be consolidating. I would look to have potential stops on the trade at 1.0690 in case the position goes against me. The stochastics on the daily chart have started turning lower, which is a concern. On the topside the downtrend drawn from the March high needs to break at 1.0764.
New York Cocoa (Sept-14)
Trend followers could look at a daily chart of New York Cocoa, with the chart in a textbook uptrend and now at three-year highs. Fundamentally we are seeing the perfect mix of increasing demand, predominantly from Asia, with the supply story deteriorating as well. Heavy rains in big cocoa producing countries such as the Ivory Coast and Ghana are weakening the supply story and helping to push cocoa prices to three-year highs.
China A50 Cash
The A50 cash index could print a higher high today if it breaks the June high of 6943. At 11:45am AEST we get HSBC manufacturing PMI data and economists expect a slight improvement in the pace of expansion with the index being revised to 51 (from 50.7) – this would be the fastest pace of growth since March 2013.