“Kiwi” shows the dollar how to respond to rate cuts

8 thg 8, 2019

Yesterday, several influencing decisions on easing monetary policy from the “echelon” were coming out of the Central Banks. In particular, New Zealand’s central bank cut interest rates a steep 50 basis points. The Reserve Bank of India also cut the rate by 0.35%, as well as the Bank of Thailand by 0.25%.

As a result, The New Zealand Dollar has been depreciating in a descending channel pattern against the US Dollar (3%). That is, the New Zealand dollar shows American how to respond to monetary easing. In this light, it would be useful to recall that the US dollar, by and large, ignored the Fed rate cut last week. That is, it continues to develop the potential for a downward movement. So, its sales continue to be relevant and perspective in terms of earnings.

Moreover, after the devaluation of the renminbi, Trump’s desire to devalue the dollar increased even more. According to Viraj Patel an ING strategist, the United States might conduct direct foreign exchange intervention by selling dollars from the Exchange Rate Stabilization Fund (ESF). And this is not the only option. The Fed may make currency interventions or may be the Ministry of Finance or both bodies at the same time, as it usually happened before.

As for gold, the current mood is clearly on the buyers' side, as well as the general fundamental background (the next round of monetary easing by leading central banks). Also, the Central Bank of China is actively increasing physical gold purchases, creating additional demand for the asset in the market. Nevertheless, in our opinion, gold is too overbought and for now, we will refrain from buying it in the movement direction. Now, if we make purchases, then from extreme daily lows, but in general we begin to prepare for a correction and early gold sales.

Today is not rich in important macroeconomic statistics, so there is every chance of continuing the development of current trends.

As for our recommendations, we will continue to sell the dollar on almost the entire spectrum of the foreign exchange market. Pound purchases are still interesting to us in the long term, as are sales of the Russian ruble and oil.