In opinion of FX Strategists at UOB Group, the prospects for Cable breaking below 1.3760 appear diminished for the time being.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the rebound appears to be running ahead of itself, further GBP strength appears unlikely’ and we expected GBP to ‘trade between 1.3700 and 1.3780’. Our view was not wrong even though GBP traded within a slightly narrower range than expected (1.3697/1.3770). The underlying tone has improved somewhat and this could lead to GBP edging upwards even though the major resistance at 1.3810 is unlikely to come under threat (there is another resistance at 1.3780). Support is at 1.3725 followed by 1.3695.”

Next 1-3 weeks: “Yesterday (12 Apr, spot at 1.3705), we noted that ‘downward momentum has not improved by much but a clear break of 1.3670 is not ruled out’. We added, ‘any further weakness is expected to struggle to move below the next support at 1.3640’. GBP subsequently dropped to 1.3670 before rebounding strongly to 1.3776. While our ‘strong resistance’ level at 1.3780 is still intact, downward momentum has waned and the prospect for a break of 1.3670 has diminished. For now, GBP is more likely to trade between 1.3670 and 1.3810.”

  • AUD/NZD preserves its cautious momentum during the Asian session.
  • RBNZ left its key rates unchanged in Wednesday’s policy decision.
  • Australia drops the Johnson and Johnson coronavirus vaccine after a few serious blood clot issue reports.

AUD/NZD moves back and forth, down 0.12% intraday while taking rounds to 1.0820-10 during the initial Asian session on Wednesday. Even so, the quote seems to struggle for a clear direction after strong consumer sentiment data in Australia and the central bank’s key rates decision in New Zealand.

Starting with the Reserve Bank of New Zealand’s (RBNZ) interest rate decision, as widely expected, the central bank maintained the status quo and left the key rates unchanged at 0.25%. The Large-Scale Asset Purchase (LSAP) program of up to $100billion and the Funding for Lending Programme (FLP) operation were also kept unchanged. The cross remained unfazed by the decision.

Furthermore, Australian Westpac Consumer Confidence Index rose to 6.2% in April from 2.6% a month earlier. On the data, the Australian Treasurer Frydenberg commented, “this is an extraordinary result” on improved business conditions and consumer confidence. However, it seems aussie has already discounted all the good news, and not responding to the recent headlines.

Australia’s decision to uplift some restrictions in Queensland from Thursday amid the rejection of the J&J covid vaccine also raises doubt over the performance of aussie. By keeping an upper hand in managing the pandemic, New Zealand already deploys very strict measures against the diseases.

Against this backdrop, S&P 500 Futures trade almost flat whereas the US 10-year Treasury yield catches a breather after the previous day’s recovery moves to 1.69%.

Looking forward, a light economic calendar should highlight the US Fed Chair Jerome Powell’s speech later to gauge the market sentiment.

AUD/NZD levels to watch

 

Chinese Premier Li Keqiang told a group of senior US executives on Tuesday, Sino-American communication must be stepped up, doing away with the differences, per Reuters.

“(We need to) step up dialogue and communication, and expand practical cooperation, properly manage differences, and push Sino-U.S. relations towards the direction of overall stability,” Li said.

Meanwhile, Gao Jian, Vice Director at the National Development and Reform Commission (NDRC) International Department, said: “We hope the U.S. business circle could work together with NDRC to push the great ship of Sino-U.S. relations back to the track of healthy development as soon as possible.”

Market implications

Strengthening US-China relations via communication could offer a much-needed tailwind to the risk sentiment, pushing AUD/USD further beyond 0.7650 levels.

The spot was last seen trading at 0.7657, up 0.24% on the day.

  • USD/CAD eases from intraday high while keeping the bounce off short-term support line.
  • 100, 200-SMA confluence and a falling trend line from March 30 test the bulls.
  • Monthly bottom adds to the downside filters, extended consolidation more likely.

USD/CAD steps back from the day’s high of 1.2547 to 1.2541 amid early Wednesday. Even so, the loonie pair keeps its U-turn from an ascending support line from March 19.

Given the absence of extreme RSI conditions, the pair’s latest bounce off the key support is likely to cross 50% Fibonacci retracement level of late February to March 18 downside, around 1.2555.

However, any further rise will have to cross a convergence of 100 and 200-SMA near 1.2575, a break of which should push USD/CAD bulls toward attacking the two-week-old resistance line, around 1.2625.

Meanwhile, a downside break of the 1.2525 support line isn’t an open call to the USD/CAD bears as the monthly low surrounding the 1.2500 threshold should test the quote’s further weakness.

To sum up, USD/CAD is in a consolidation mode inside a symmetrical triangle, which in turn suggests the latest corrective pullback to continue.

USD/CAD four-hour chart

Trend: Further recovery expected

 

  • NZD/USD steps back after challenging the intraday high.
  • RBNZ left monetary policy, benchmark interest rate unchanged, as widely expected.
  • Market sentiment remains mixed amid a light calendar, vaccine woes, weaker dollar chattered the most.
  • Fed’s Powell, risk catalysts remain in the spotlight.

NZD/USD drops to 0.7050, following its initial jump to 0.7068, following the Reserve Bank of New Zealand’s (RBNZ) rate decision during early Wednesday. In doing so, the kiwi pair reacts to the pullback in the US dollar but a quiet session in Asia restricts the pair’s moves.

RBNZ matches most market consensus while leaving the benchmark interest rates unchanged at 0.25% and large-scale asset purchases program (LSAP) left at NZ$100 billion. The New Zealand central bank also said, “It’ll leave current monetary policy settings in place until its confidence that inflation and jobs targets are achieved.”

Read: RBNZ left rates on hold at 0.25%, NZD unchanged

Earlier in the day, Australia’s Westpac Consumer Confidence for April marked strong figures of 6.2% versus 2.6% previous expansion. Also on the positive side was the news that Queensland will be early in removing the coronavirus (COVID-19)-led activity restrictions. Australia becomes New Zealand’s biggest trading partner and hence any positive for the Oz nation should favor the kiwi.

On the contrary, a halt in the Johnson & Johnson covid vaccine’s usage in all the 50 US states and no more trials, amid blood clotting issues, seem to have tested the market’s optimism. Furthermore, fears of reflation, backed by Tuesday’s strong US inflation figures, also challenge the market sentiment.

However, a lack of major catalysts and a light macro flow keep the markets dull.

Against this backdrop, S&P 500 Futures wobble around record top whereas the US 10-year Treasury yields catch a breather after 5.6 basis points (bps) of declines the previous day. Further, New Zealand’s NZX 50 rise 0.50% to 382.80 by the press time.

Moving on, NZD/USD traders will keep their eyes on the speech from Fed Chair Jerome Powell, around 16:00 GMT, for fresh impulse as the US central banker will be watched for his reaction to the recently strong inflation data.

Technical analysis

A clear upside break of a downward sloping trend line from February 25 and 21-day SMA, respectively around 0.7025 and 0.7050, enables NZD/USD bulls to eye the lows marked during January and early March surrounding the 0.7100 round-figure.

 

The Reserve Bank of New Zealand has left rates on hold at 0.25%, as widely expected and there has been little reaction in the market so far.

Key notes

Says large scale asset purchase programme maintained at NZ$100 bln.

Says funding for lending programme unchanged.

Says prepared to lower OCR if required.

Says monetary stimulus continued.

Says to maintain current monetary settings until it confident that inflation will and employment targets achieved.

Says economic activity in New Zealand slowed over the summer months.

Says planned trans-tasman travel arrangements should support incomes and employment.

Says medium-term inflation and employment would likely remain below its remit targets in the absence of prolonged monetary stimulus.

Says extent of the dampening effect of the government’s new housing policies on house price growth will take time to be observed.

Says outlook remains highly uncertain.

Reduced government bond issuance was placing less upward pressure on New Zealand government bond yields and providing less scope for LSAP purchases.

NZD/USD implications

Meanwhile, the kiwi had been testing hourly resistance.

  • NZD/USD Price Analysis: Bulls taking on the hourly resistance ahead of RBNZ

Description of the RBNZ Interest Rate Decision  

RBNZ Interest Rate Decision is announced by the Reserve Bank of New Zealand.

If the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.

  • S&P 500 Futures probe five-day winning streak as bulls look for fresh push.
  • Upbeat US inflation figures favored the bulls but J&J vaccine news, strong bond auction test the upside.
  • Fed’s Powell, Coinbase debut and vaccine news will be eyed for fresh impulse.

Having refreshes the record top to 4,139.62 the previous day, S&P 500 Futures waver around 4,134 during Wednesday’s Asian session. The risk barometer earlier cheered upbeat US inflation figures and hopes of further stimulus from US President Joe Biden before the coronavirus (COVID-19) vaccine updates joined the 30-year Treasury bond auction hit the quote.

US inflation figures for March flashed strong readings but the reflation fears couldn’t be witnessed as the latest bond auction met with strong demand. Also on the positive side could be US President Joe Biden’s readiness to push for a $2.25 trillion infrastructure plan despite Republicans’ dislike for tax hikes.

On the contrary, the US Food and Drug Administration (FDA) and Centers for Disease Control and Prevention (CDC) ordered to stop using the Johnson & Johnson (J&J) vaccine in all 50 US states over blood clotting issues. Further, US-China tension escalates after Beijing warned Washington to control its ties with Taiwan.

It’s worth mentioning that the J&J news seemed to have recently lost its importance as comments from the White House Covid Coordinator signaled to have enough Pfizer and Moderna jabs to keep the vaccinations smooth.

The economic calendar remains silent in Asia with Japan Machinery Orders and Aussie Westpac Consumer Confidence flashing mixed results. Though, the news that Queensland will be early in reversing the covid-led lockdown and remove mask mandate except for making it compulsory at the airports and public transport, seems to have favored the mood.

Considering the light calendar and an absence of fresh macro, investors will wait for Fed Chairman Jerome Powell’s speech at 16:00 GMT for fresh impulse. Also important would be the market’s reaction to the Coinbase debut.

Read: Wall Street Close: Vaccine woes test bulls even as S&P 500, Nasdaq refresh record top

  • NZD/USD meeting critical resistance ahead of RBNZ.
  • 4-hour support is compelling on a break of hourly structure. 

There are downside prospects ahead of the Reserve Bank of New Zealand event today as the following illustrates from an hourly and 4-hourly perspective. 

Hourly chart

The price is testing hourly resistance ahead of the event, supported by the hourly support structure. 

4-hour chart

From a 4-hour perspective, the downside is compelling with respect to the W-formation and a 38.2% Fibonacci could be on the cards which would clear the hourly support. 

In recent trade today, the People’s Bank of China (PBOC) set the yuan mid-point at 6.5362 vs the previous fix 6.5454 and previous close 6.5452.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

CNY differs from its offshore yuan, or CNH, which is not as tightly controlled as the onshore yuan.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day closing level and quotations taken from the inter-bank dealer.