Today’s Key Market Drivers: 1st August 2018
“The Bank of England is expected to raise its official cash rate this week.”
On Tuesday, the Bank of Japan kept its current stimulus program and interest rate steady squashing a recent Reuters report that it may be gearing up to reduce its current stimulus program. The BOJ said it intended to continue with its zero-interest-rate policy for an extended period of time and traders that were expecting a shift in the bank’s future policy were left disappointed. The Yen fell on the news with the USD v JPY starting to move up into Wave #5 on the 4-hour chart.
The Kiwi Dollar dipped this morning following a weaker than expected unemployment report. The official unemployment rate in New Zealand climbed to 4.5% from 4.4%. I doubt this will have any long-lasting impact on the Kiwi Dollar, however, it will just put another nail in the coffin with respect to interest rates rising in New Zealand any time soon. Currently, the market does not expect the RBNZ to raise the official cash rate until the second half of 2019 and the Central Bank continues to remind traders the official cash rate will remain on hold for the foreseeable future. That is the reason why I believe any rally on the NZD vs USD is an opportunity to get short on the Kiwi Dollar. Interest rates in the USA are going to rise another two times this calendar year widening the interest rate differential between the RBNZ and US Fed. Simply park your money at the US Fed and you’ll earn close to 1% more than you would leaving your billions at the RBNZ. There is simply no reason why any major sovereign wealth fund or National Central Bank would want to diversify money into Kiwi or Aussie Dollars in the coming six months when they can get a higher return in the US. The US economy is booming and the European economy has a huge amount of upside and it’s these two parts of the world that will benefit in coming years and so will their currency values vs emerging markets including Australia and New Zealand. Until wages growth picks up in Australia and the economy is over the impending mortgage crisis the RBA will leave the cash rate at 1.5% and the RBNZ will leave theirs at 1.75%.
The EUR v USD triggered a price rejection trade to the downside overnight but as there was already a price rejection trade triggered on the same currency pair last Friday there is no reason to double up on the position. Please review today’s video update for a full explanation. There is also a head and shoulders setting up on the GBP v USD 4-hour chart which I want you to watch as it may be triggered by the BOE’s statement on Thursday.
In the coming 24 hours, it is expected the Bank of England will raise its official cash rate by 0.25% and the US Fed will leave its cash rate unchanged for August but remind traders it still intends to lift the cash rate twice before Xmas. Traders have already priced in the impending rate hike from the BOE and if it says in its statement that it won’t raise the cash rate again in 2018 and strikes a dovish tone I would expect the Pound to weaken. Brexit concerns still linger.
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About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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