Recall past articles just a few short years ago to reveal OCR and AUD contain negative correlation at -90%. Written only a few short years ago but covered 10 years of data and enough to account for any future RBA cuts.
The smart move for the RBA particularly under most respected big Glenn Stevens was raise OCR to drop AUD as was Stevens desire for a lower AUD in line to the RBA’s Commodity Index. Big Glenn Stevens expertise however was in Economics rather than market assessment and trading. Lowe is quite different as he contains a degree of understanding to markets and particularly interest rates.
At 0.25%, the RBA would remain competitive to its partner at the RBNZ at 0.25% and far above all nations current interest rate settings. The RBA’s position to retain OCR to positive rather than negative rates offered a daily fixed interest rate system against a negatively correlated AUD. The RBA at 0.25% contained much more room to adjust daily interest rates to its desired AUD levels but now the RBA is completely stuck with a fixed interest rate system and an unwanted AUD level.
OCR has only one way to travel and its up unless the RBA adopts negative interest rates which is no big move as the interest rate scale adjusts from positive to negative. OCR will remain negative to AUD only under a different interest rate number.
While the RNBZ retains 0.25 OCR, NZD/USD rose 1500 pips from 0.5800 to 0.7300’s and accomplished in 10 months from April 2020. NZD is no different from any currency pair on the planet however the RBNZ is the smarter central bank among all central banks due to its ability to manage daily OCR and NZD to its desired moves and levels.
NZD’s 10 year yield dropped 6 points, the 5 year dropped 4 points and the 2 year fell 3 points. The difference between NZD before and after the RBNZ statement is Zero and no effect to the exchange rate. RBNZ interest rates from yesterday to today failed to change and NZD won’t change except to trade its normal daily movements.
Stimulus remains but no daily interest rate changes under new or existing stimulus is meaningless. Correct is stimulus automatically drops interest rates as traditional money supply/ stimulus and interest rate relations shares its negative relationship. The central banks managed to fix the interest rate system within their own economies under strict authoritarian control.
NZD/USD rose today rose from 0.7360 to 0.7392 or 32 pips. NZD didn’t even trade to its daily target at 0.7408 and 0.7403. Did we know last evening the RBNZ delivered a monetary policy statement. Does it matter. No it doesn’t under a fixed interest system.
The RBNZ could’ve delivered a statement that said it would spend every last NZD nickel on stimulus but if interest rates remained the same then the results to NZD trade would’ve remained the exact same.
The Inflation story no longer flies as interest rates remain the exact same everyday. Inflation under the RBA and RBNZ scheme however is far different than any central bank as Inflation must be understood from Trade Ables to Non Tradeables. And here is found the Exports and Imports and exports says the RBNZ is running above imports. This says Inlation is contained and not a problem to run wild. The RBNZ factors Inflation to Oil at 0.4 and as Oil remains elevated then this further reveals Inflation remains a non existent problem for the RBNZ.
The S&P’s from reported overbought status dropped 139 points so far from 3958 to 3803 and a long way to drop. Gold remains under 1815. The DXY remains within 89.95 to 91.43 however current 90.03 trades at the lower end.
GBP/JPY broke 148.31 and traded to 150.11 highs or overall 2400 pips from 126 lows. Watch EUR/JPY 128.16.
USD/CAD is on the verge of a break at 1.2586 and 1.2582. A break lower places USD/CAD from 1.2582 to 1.2029 and targets 1.2305. USD/CAD dropped 2000 pips from 1.4500’s. DXY will decide CAD’s fate.
Here’s AUD/USD for the next 12 months
0.7309, 0.7637, 0.7821, 0.7941, 0.8062, 0.8187 and 0.8303.
0.6840, 0.7120, 0.7267, 0.7356. 0.7445 and 0.7535. However 0.7400’s NZD is not on the radar screen in its current MA’s to understand the depth of overbought.