FOMC: The Federal Open Market Committee of the Fed continued its positive assessment of the economic recovery. ” Labor market conditions have improved further, with strong job gains and a lower unemployment rate. ” (FRB: Press Release) Still inflation and wage growth is subdued. At the end of the day, the FOMC is not changing its stance, which suggests that it is still consideration raising interest rates by mid-2015.
With other central banks becoming dovish, cutting rates, and increasing stimulus measures, traders had doubts whether the FOMC will keep its course. Today’s statement was thus relatively hawkish and should give the USD another boost.
RBNZ: The RBNZ held its official cash rate at 3.5% and expects to keep it at this rate for a period of time. Some interpret today’s statement as slightly dovish because it did not defend against a rate cut, leaving that door open. (stuff.co.nz) Regarding the exchange rate, RBNZ Governor Graeme Wheeler also said “we expect to see further significant depreciation”. (RBNZ)
For traders, it was a hawkish FOMC statement, and a neutral RNBZ statement, but with some jawboning about the New Zealand Dollar (NZD). As you can expect, the NZD/USD plunged.
The NZD/USD was already in a bearish trend, and after a bit of consolidation to start the year, it was reviving the downtrend again last week. This week price held at 0.74 ahead of the central bank risk, but consolidated under 0.75 and a falling trendline.
After the central bank announcements, NZD/USD fell sharply below 0.74 and is poised to test the 0.73 handle with risk of continuing toward the 2011-low at 0.71, shown on the weekly chart below.
After this week’s bearish continuation break, the 0.74-0.7450 area should become resistance if there is a pullback.
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