RBNZ Unchanged Following a Sudden Turn of Events
Quite the turn of events for the RBNZ, which I have to hold my hands up and say I got the call wrong. The bank surprised many by opting to leave the OCR unchanged at 0.25% following the announcement of NZ lockdown measures in response to one Covid case being found. Keep in mind, that at the beginning of the week OIS markets were pricing in a 100% probability of a 25bps hike at this week’s meeting and thus the RBNZ’s decision emphasises just how unpredictable markets can be.
That being said, the Kiwi initially dropped as a result of the decision to not hike rates. Although, NZD downside had been capped by the hawkish outlook, which highlighted a steep hiking cycle and in fact would have matched what I previously believed to be elevated market pricing in the rates market. While in comparison to the May MPS, the August OCR path is notably higher.
Source: RBNZ, DailyFX
Covid the Main Factor for NZD over Economic Data
With the RBNZ acknowledging that conditions have been achieved to reduce stimulus, the focal point for NZD now is how the Covid situation transpires in the next few weeks. The next policy meeting is not scheduled until October, where OIS markets place a 50/50 probability of a rate hike occurring.
Swiss Franc Strength Gaining Attention
A currency that tends to go under the radar, but has increasingly gained my attention is the Swiss Franc, particularly against the Euro, whereby the cross fell to a fresh YTD low and briefly dipping below the 1.07 handle. The fall has been made the more interesting by the fact that the SNB has stepped up its FX intervention in recent weeks with sight deposits ticking higher.
Further EUR/CHF Downside Maybe Limited From Current Levels
Taking a look at the chart, the recent lower low has not been confirmed by the RSI. What’s more, despite the brief dip below, the 1.07 handle remains firm, while additional support resides at 1.0660-80. Currently, it appears EUR/CHF is attempting to find a bottom, which may carve one out should yields turn higher. From current levels, I am favouring upside from here, as the SNB begin to step in.
EURCHF Chart: Daily Time Frame