The dollar eased from 14-year highs on Wednesday, giving back some of the gains chalked up since Donald Trump's U.S. election victory, while concerns over banks pulled European shares lower. The markets also looked set to open lower, according to index futures, after the Dow Jones industrial average climbed to within 25 points of the 20,000 mark on Tuesday.
The New Zealand dollar has so far been able to hold its own relatively well against the dollar despite the latter breaking to new multi-year highs against the likes of the euro and Swiss franc, and multi-month highs versus the yen. But the bullish days for the NZD/USD currency pair could be numbered.
Yesterday, we thought about a potential reversal down from the 1.2730/1.2750 on cable because of five waves up; Slow and sideways price action ahead of the FED is looking like a correction in the middle of a three wave rise in the EUR/USD.
The market is demanding a rate rise and the Fed better deliver it today, for if it doesn’t the bank’s credibly will be severely damaged. There is really no excuse not to do so. For the euro/U.S. dollar (EUR/USD) currency pair, a hawkish Fed hike could mean the breakdown of the 1.05 handle at the umpteenth time of asking.
Trump’s Great America Experiment, which combines protectionist policies toward domestic U.S. companies with reduced red tape and lower taxes, is already impacting the USD and emerging market currencies. With expectations that his policies will be positive for the US economy and encourage stronger economic growth, the market has been buying the U.S. dollar and this has pressured global currencies.
Markets have a bit of an awkward "eye of the storm" feeling to them today as traders continue to digest yesterday's ECB meeting. More to the point, ECB President Mario Draghi emphasized in his press conference that the purchases could be extended further if needed, making this a far more dovish decision than traders had expected.
The euro was back under pressure on Friday after an extension of the European Central Bank's program of money-printing drove its biggest daily loss against the dollar since Britain's vote to leave the European Union in June.
The AUD/NZD currency pair could be about to turn decisively higher. Last night’s Reserve Bank of Australia (RBA) policy statement was as neutral as it could get. More to the point, there were no hints of further interest rate cuts. In contrast, the RBNZ suggested at its last policy statement that more rate cuts could be on the way. This alone makes me think that the AUD/NZD may have bottomed out.