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Risk Off! Just in Time for RBNZ

  • Kathy Lien
  • 8 May 2019

Daily FX Market Roundup May 7, 2019

 

All of the major currencies traded sharply lower today as the Dow Jones Industrial Average tumbled more than 400 points.Investors are finally growing nervous as the clock ticks towards President Trump's Friday deadline on Chinese tariffs. Equities and currencies turned lower led by the slide in USD/JPY. Although China is proceeding with trade talks, the deadline's proximity means Trump is more serious than ever before. The chance that the tariffs will come to fruition is greater than 50% and when they are made official, we'll see renewed losses in currencies and equities. The greenback's gains against all of the major currencies today except for the Japanese Yen is a sign of risk aversion - a sentiment that should drive FX flows throughout the week.

 

The Australian dollar took the risk in stride because the Reserve Bank of Australia left interest rates unchanged last night.In yesterday's note we argued that the RBA will forgo a rate hike and that was exactly what happened. However despite the rise in the Australian dollar, the RBA statement was more cautious than optimistic. The central bank said that inflation in the March quarter was noticeably lower than expected. There's still further spare capacity, further jobs improvement is needed to meet their CPI target and the main domestic uncertainty is housing. Even though they had nothing good to say about the economy AUD still traded higher because investors were positioned for a cut but from the RBA statement, its clear that the central bank is worried about the outlook for the economy. Although retail sales and trade beat expectations, both reports were weaker than the prior month. Chinese trade numbers are scheduled for release this evening and while recent data has shown some signs for stabilization, softer numbers could send AUD and NZD down quickly.

 

The Reserve Bank of New Zealand is up next and like the RBA, they have a lot to be worried about.Aside from President Trump's threat to imposed 25% tariffs on $200B worth of Chinese goods this Friday, the economy weakened significantly since their last policy meeting. Since March, credit card spending is down, labor market, service, manufacturing and housing market activity softened. The trade balance is much higher but inflation is much lower. Back in March, the RBNZ shocked the market when they said a rate cut is more likely now than a hike as the balance of risks shifted to downside due to lower business sentiment and a more pronounced global downturn. At the time, NZD/USD experienced its strongest one day decline in 7 weeks and could fall further if the central bank reaffirms their dovishness. Technically, NZD/USD is in a downtrend and is poised for a move down to support at 65 cents.

 

 

For EUR/USD 1.12 has become a challenging resistance level made more difficult by a weaker than expected increase in German factory orders. German industrial production numbers are scheduled for release this evening and the risk is to the downside after today's report. Meanwhile stronger Canadian IVEY PMI numbers failed to help the loonie which remains in a strong uptrend above 1.34.

 

 

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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.


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