The higher-yielding Kiwi staged quite a turnaround from its earlier selloff, but will the rallies last?
Or will the FOMC turn risk sentiment around?
Before moving on, ICYMI, yesterday’s watchlist checked out a triangle breakout on CAD/JPY as risk appetite returned. Be sure to check out if it’s still a valid play!
And now for the headlines that rocked the markets in the last trading sessions:
Fresh Market Headlines & Economic Data:
Canadian headline CPI fell short of estimates with 0.4% m/m increase in February vs. estimated 0.5% gain, bringing year-over-year figure down to 5.2%Rebound in U.S. bond yields seen, as markets warmed up to the idea of a 0.25% Fed rate hike and financial sector woes seemed to ease
Private crude oil inventories increased by 3.262 million barrels vs. estimated reduction of 1.448 million barrels – API
Russia’s Deputy Prime Minister Alexander Novak says that the country will maintain its crude oil cut of 500,000 barrels per day until June 2023
Japanese Chief Cabinet Secretary Matsuno says the gov’t will allocate 2 trillion JPY from reserves for measures to alleviate the economy from rising prices
New Zealand dairy prices fell by 2.6% in the latest GDT auction, following earlier 0.7% dip
New Zealand’s Westpac consumer sentiment index improved from 75.6 to 77.7 in March quarter, even as households struggle with higher living costs and mortgage rates
Australia’s MI leading index posted another 0.1% m/m dip in February, chalking up its seventh consecutive negative reading
U.K. headline CPI jumped from 10.1% y/y to 10.4% in February vs. estimated dip to 9.9% due mostly to housing and household services
Price Action News
After a round of losses in the previous trading sessions, the Kiwi managed to bank on an improvement in risk appetite over the past few hours.
Some semblance of calm returned to the financial markets, likely on the lack of another set of downbeat updates from struggling financial institutions. Expectations of more government support for the First Republic Bank might also be keeping jitters in check.
Apart from that, traders probably lightened up on their earlier NZD positions in anticipation of volatile moves during the FOMC decision today.
Upcoming Potential Catalysts on the Economic Calendar:
U.S. crude oil inventories at 2:30 pm GMT
FOMC monetary policy statement & economic projections at 6:00 pm GMT
FOMC press conference at 6:30 pm GMT
Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! 🔥 🗺️
Risk-on flows returned to the markets on stronger hopes that government and central bank support might be enough to prevent further bank runs and a collapse in the financial sector.
This allowed NZD/JPY to recoup some of its losses and then some, climbing all the way up to test R1 (82.34) of its Standard Pivot Points early on.
But can the rallies last?Note that the pair is closing in on the top of a falling wedge pattern, which happens to coincide with R2 (82.63) and might be a take-profit level for bulls.
After all, traders might be keen on booking their winnings ahead of the highly-anticipated FOMC decision later today.
Keep in mind that the Fed is widely expected to scale down their rate hike to just 0.25% to practice some caution amid banking sector troubles. Some even expect the U.S. central bank to refrain from hiking at all!
A less optimistic outlook from FOMC policymakers might be enough to bring risk aversion back to the table, possibly dragging NZD/JPY back down to nearby support levels like the area of interest at 82.00.
Still trying to figure out how the March FOMC statement might go? Here are some scenarios and potential market reactions to consider.