Is the PBOC really prepping for a rate cut in February?
And will the BOC announce a shift in policy bias later today?
Here’s how China’s stimulus chatter is affecting risk appetite and NZD/CAD price action ahead of the BOC decision.
Before moving on, ICYMI, yesterday’s watchlist checked out EUR/NZD’s pullback levels ahead of New Zealand’s CPI report. Be sure to check out if it’s still a good play!
And now for the headlines that rocked the markets in the last trading sessions:
Fresh Market Headlines & Economic Data:
New Zealand Q4 2023 CPI at 0.5% q/q as expected, down from earlier 1.8% increase
Australia’s flash manufacturing PMI climbed from 47.6 to 50.3 in January to reflect shift to industry growth, flash services PMI improved from 47.1 to 47.9
Japanese flash manufacturing PMI ticked higher from 47.9 to 48.0 in January to signal slower pace of industry contraction
SNB head Jordan mentioned in a speech that franc appreciation has lowered nominal inflation
New Zealand credit card spending accelerated from 3.3% year-over-year gain in November to 4.3% increase in December
PBOC Governor announced a RRR cut for February, citing that they plan on using various policy tools to boost liquidity
Price Action News
Overlay of USD vs. Major Currencies Chart by TradingView
After a risk-on inspired selloff in the previous trading sessions, the safe-haven dollar carried on with its slump during the Asian markets when word broke out that the PBOC is mulling a RRR cut.
And when PBOC head Pan Gongsheng confirmed that they will lower the reserve ratio requirement by 50 bps in February, commodity currencies and risk assets also rallied to cheer the additional stimulus efforts.
The PBOC Governor even noted that they will use various policy tools in order to ensure that liquidity stays reasonably ample, adding to optimism from earlier reports suggesting that the Chinese government is set to unveil a 1 trillion yuan stimulus package.
Upcoming Potential Catalysts on the Economic Calendar:
French flash manufacturing and services PMIs at 8:15 am GMT
German flash manufacturing and services PMIs at 8:30 am GMT
Eurozone flash manufacturing and services PMIs at 9:00 am GMT
U.K. flash manufacturing and services PMIs at 9:30 am GMT
Bank of Canada’s monetary policy decision at 2:45 pm GMT
U.S. flash manufacturing and services PMIs at 2:45 pm GMT
Bank of Canada’s press conference at 3:30 pm GMT
Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! ️
NZD/CAD: 15-min
NZD/CAD 15-min Forex Chart by TradingView
The spotlight shifts to the BOC monetary policy decision in the upcoming New York session, as some say that the central bank might announce a dovish pivot.
Signs of weaker economic activity would likely convince the BOC to keep rates on hold while also downplaying expectations for future interest rate hikes.
On its 15-min time frame, NZD/CAD has formed a double bottom pattern and is already testing the neckline of the reversal formation.
After all, expectations of large-scale stimulus from China and the announcement of a February RRR cut lifted the commodity currencies earlier today.A break past the resistance around .8230 could set off a rally that’s the same height as the formation, possibly taking NZD/CAD to the bullish targets at R2 (.8260) then R3 (.8290).
However, if the BOC retains its hawkish bias and reiterates that core inflation remained elevated in December, the pair could retreat from current levels and revisit the lows near S1 (.8184).
