RBNZ Defies Cut Chatter, Euro Drops Again

The RBNZ signaled it won't join in the race to cut rates, at least not yet. A late charge in NZD helped it unseat the US dollar as the top performer while the euro lagged. The Australian employment report is next. The RBNZ announcement sent the Premium short of AUDNZD deeper into the green. USDCAD was stopped out and yesterday's EURUSD short is 40 pips away from realizing its 190-pip target. A new NZD Premium trade will be sent out to subscribers prior to RBNZ governor Wheeler's testimony at the top of the hour. 

NZDUSD was at the lows of the day at 0.7192 and just a handful of pips above the Feb low when the RBNZ decision was released. There was talk about a surprise cut with 2 of 16 economists making that prediction but it didn't come and NZD rallied.

In fact, it wasn't even close. Wheeler said the central bank has a neutral bias and talked about a period of stability in rates. He continued to jawbone and some traders noted that he said a correction is 'needed' from a depreciation is 'expected' and that could signal intervention. But that intervention is unlikely to come versus the US dollar as Wheeler said he was 'pleased' with the NZDUSD rate.

Aside from the kiwi, the main story in the forex market was the continued plunge in the euro. It was the second consecutive day of more than 130 pip declines in EUR/USD and the ninth negative day in the past 10. Core and periphery yields are continuing to fall and Nowotny openly wondered about the potential consequences of buying bonds with negative yields. He expressed worry that QE might be too successful in the bond market.

In the FX market, it's increasingly clear there is no appetite for buying euros whatsoever. Every bounces fades within hours and near-term technical support is nearly negligible aside from psychological levels like 1.05.

The other big story in FX is the roaring US dollar. Other currencies also fell against the dollar on Wednesday, especially the pound as it cratered through 1.50. The commodity currencies haven't been spared with USD/CAD rising to within a hair of the 2015 high of 1.2799.

The Australian dollar 'only' fell a half cent on the day but part of the reason may be light trading ahead of the Feb employment report due at 0030 GMT. The consensus is for 15K new jobs after a 12.2K drop a month earlier. As always, the full-time/part-time breakdown along with the unemployment rate are important caveats. Another one is the increasing skepticism about the ability of the ABS and RBA to protect sensitive information. An investigation is underway after an apparent early move in AUD/USD on last week's RBA announcement.