22 October 2016
Currency market traders will examine the upcoming policy statements of the Fed and the Bank of Japan very closely. Photo: Reuters
Currency market traders will examine the upcoming policy statements of the Fed and the Bank of Japan very closely. Photo: Reuters

Markets await outcome of central bank meetings

Central banks in New Zealand, Japan and the US are holding key policy meetings this week. Since it’s widely expected that the Fed will keep its key rate unchanged, the market will focus on any change in its policy stance for the months ahead.

The New Zealand dollar has eased against the US dollar for three straight days, before recovering slightly this week. It’s expected that the nation’s central bank would either further relax the monetary policy or keep its benchmark rate unchanged at 2.25 percent.

Since the start of the year, the New Zealand dollar has been trending upward against the greenback. But it retreated last week. The 0.709 level would be a key resistance. If it fails to break over 0.7, it might face more correction pressure.

US new home sales unexpectedly dropped in March, stoking concerns about the momentum of US economic recovery. In that sense, the Fed might dial back its rate hike pace. 

In Japan, speculation of further monetary easing measures has led to the yen getting capped. However, it remains unclear whether the Bank of Japan will launch new stimulus measures in the latest meeting.

Technical analysis shows that the US dollar has broken the downtrend against the yen since early February. If the dollar can rise over the 50-day moving average of 111.8, it could further extend the rally. But if it falls below 110, it might tumble further to 108.5 or even 107.6.

Euro once slumped to 1.1213 against the dollar on Monday. Then it rebounded to 1.13 the following day. It seems the European unit may face further correction, given that it has failed to break over the key resistance level of 1.15 early this month and 1.14 last week. The critical issue is whether the unit can stay above 1.15, a key support level seen in late March.

In the meantime, sterling has soared to a two-month high of 1.455 against the dollar, after US President Barack Obama said he would like Britain to stay in the European Union. The trade-weighted index of sterling has slumped over 8 percent since November last year, reflecting market concerns about the risk of Brexit.

According to betting website Betfair, the odds of Brits voting to remain in the EU on June 23 have reached the lowest since last September and the chance of Brexit dropped to 27 percent. In this case, sterling may see further rally after moving past the resistance level of 1.442.

US dollar has kept falling against the Canadian dollar since early this year, and failed to reverse the trend so far this month. It has to break over the 25-day moving average of 1.293 and trend line of 1.282. However, the greenback is more likely to drop further to 1.256.

Weakening iron ore and copper prices have put a cap on Aussie dollar, which has dived to 0.769 against the US dollar on Monday. China’s three main commodity exchanges all have raised trading margins and fees to cool down frenzy in the futures market.

Aussie dollar has kept rising against the US unit after hitting a trough in January, and has formed a key support level at 0.751. However, it may see some correction after failing to break over the level of 0.783 for three straight days.

Meanwhile, a weaker dollar has benefited gold price, which has risen nearly 17 percent so far this year. The yellow metal is undergoing consolidation at the moment. It may drop further if it falls below US$1,231 per ounce.

This article appeared in the Hong Kong Economic Journal on April 27.

Translation by Julie Zhu

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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