RBNZ holds rate steady at 1.75%, cuts FY18 inflation view
Considering the possibility of a rise in political uncertainty in the Europe, we had recommended going short in the EUR/NZD pair, at 1.4900 levels, on January 16th. To binary option traders, we had also suggested investing in a put option contract or its equivalent.
In the week that followed our recommendation, the pair fell by more than 400 pips thereby leading to a profit in both the trades. However, in the past three trading days, the cross has once again risen to 1.4800 levels. We expect the uptrend in the EUR/NZD pair to continue in the current week due to the reasons mentioned below.
On the basis of their research, strategists at RBC say that commodity currencies tend to reverse their January trend during February and March. In the case of the New Zealand dollar, there exists more than 70% probability of a reversal in January direction. Record migration has assisted the New Zealand economy to expand at a rate of 3%. The productivity has increased mainly on the basis of an increase in the population. Adjusting for population growth, Bill Evans, chief economist at Westpac, stated that the economy is only growing at about 1% per annum. Thus, at this point in time, analysts do not foresee any need for a rate hike in the New Zealand.
As expected the Reserve Bank of New Zealand held the interest rate steady during the policy meeting held yesterday. The RBNZ expressed its concerns about the strong New Zealand dollar and lowered the March 2018 inflation target to 1.3%, from 1.6% issued earlier. The views of the RBNZ and the inflation outlook are expected to keep the Kiwi dollar under pressure.
In Europe, investors are worried about the possible rise of the PVV or Freedom Party in the Dutch election scheduled on March 15th. However, analysts believe that there is no need to worry much about it. Even if the anti-EU PVV party headed by Geert Wilders wins the election, still, analysts say, it may not be easy to create a ‘Nexit’ due to the fact that the outcome of the referendum will have no binding effect on the Dutch Parliament, as in the case of the UK. Thus, above facts indicate that the Euro would remain strong against the Kiwi dollar in the short-term.
The price chart reveals that the EUR/NZD pair has received support from buyers at 1.4720 levels. After remaining on a declining note for nearly one month, the stochastic oscillator is gradually rising above the oversold region. This indicates that the uptrend has just now started. Thus, it would be wise to have a bullish view of the EUR/NZD pair.
A currency trader can consider going long in the EUR/NZD pair near 1.4780. Considering the fragile political situation in the Europe, a stop loss order should be certainly placed below 1.4640. The long position can be sold for a profit near the next major resistance level of 1.5020.
A call option contract can be bought by a binary trader to gain from the probable rise of the currency pair. The high or above contract should be bought only when the EUR/NZD pair trades near 1.4780. Finally, the trader should ensure that the contract remains valid at least until February 21 st .
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