The New Zealand Dollar plunged 0.8% after the RBNZ said it remains “prepared to provide additional stimulus as necessary”. Keeping the official cash rate (OCR) steady at 0.25%, the committee maintained “the balance of economic risks remains to the downside”.
As the central bank “continues to prepare for the use of additional monetary policy tools”, uncertainty remains as to “whether the monetary stimulus delivered to date is sufficient to meet its mandate”.
Highlighting the “further pressure on export earnings” due to the recent “appreciation of New Zealand’s exchange rate” suggests the RBNZ may be considering future currency intervention, in combination with an expansion of the $60 billion Large Scale Asset Purchase (LSAP) programme, to continue to support the economic recovery.
Looking forward, the central bank “will outline the outlook for the LSAP programme” and “our readiness to deploy alternative monetary policy tools in our August statement”, with the implementation of yield curve control and negative interest rates remaining viable possibilities.
Silver has also benefitted substantially from the recent weakness in the US Dollar, as it surged above the yearly open (17.83) on the first day of trade for the month.
With the RSI surging into overbought territory not once, but twice, prices looked certain to break above the February high (18.94) and 2013 downtrend.
However, this has failed to eventuate as the return of risk aversion dulled the eagerness of buyers sending price back towards support at the uptrend from the March low (11.64).
Despite breaking its 14-week uptrend, silver remains constructive above key psychological support at the 17-handle as the RSI and momentum indicator continue to signal bullish intent.
Consolidating in a short-term Symmetrical Triangle highlights the potential for a price breakout should either support or resistance give way.
Price successfully clearing resistance at the 2020 open (17.83), in tandem with both technical indicators continuing to strengthen, could signal a resumption of the impulsive move from the March lows, with key hurdles falling at the June (18.38) and February highs (18.94)
The NZDJPY has held the 200dma for the last couple days as we have pulled back to test this level. It also coincides with the 38% Fibonacci retracement of the mid May lows to June highs. As long as we close above the 200dma the risk remains for a move back towards the 71.00 level and beyond.
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Going along with that pump in US equity prices through late-May and early-June was a fall in the US Dollar. The currency broke out of a near two-month-range as sellers pushed prices down to fresh lows, and given the extreme accommodation from the FOMC and the prospect of even more accommodation down-the-road, this relationship and that move in the USD made sense.
But as of a couple weeks ago the US Dollar began to test a big spot of support on the chart. There was perhaps a bit of capitulation around the FOMC event a couple of weeks ago as USD-bears pushed down to a fresh low, only to be thwarted soon after by bulls responding to support with a strong topside push.
Since then – the US Dollar has been in the midst of a bullish short-term trend, although with some context, even that bullish backdrop could be construed in a bearish manner from longer-term charts.
The Australian Dollar has largely been in consolidation mode against the greenback since hitting a fresh 2020 high above 0.7000 at the back end of last week. In recent weeks, the AUD has predominantly tracked equity markets, which in turn has seen a sizeable recovery in the currency since the March lows. However, upside could be capped at the 0.7000 level, particularly with the RBA beginning to jawbone the currency with RBA’s Harper noting that a rate back above 0.7000 would be unhelpful. That said, as uncertainties over a second wave pick up, most notably in China, AUD/USD may come under renewed pressure with a closing break below 0.6800 to open up a move towards 0.6650.
In the absence of a fresh negative catalyst with equity markets continuing to recover, we do not rule out a possible retest of the 2020 high at 0.7061, which would likely negate a near-term bearish bias.