Daily U.S. Session Watchlist: NZD/CAD

The Reserve Bank of New Zealand will give its latest monetary policy decision later today and they are expected to cut interest rates. Will we see big volatility and will the downtrend in NZD/CAD break?

Intermarket Snapshot

Fresh Market Headlines & Economic Data:

• China Acts to Limit Yuan Plunge, Bringing Some Relief to Markets
• Kudlow: Trump is flexible on China tariffs depending on how trade talks go
• BRC UK Retail Sales: Pent-up demand released in July
• German Factory Orders Show Unexpectedly Strong Rise in June
• Aussie trade surplus expands to record $8b
• The RBA keeps interest rates on hold — but admits the economy has slowed more than it expected
• New Zealand unemployment falls to 11-year low; Minimum wage rise boosts private sector pay rates
• Japan’s household spending firm but wages weaker
• Key Gauge of Japan’s Economy Falls to Lowest Since Early 2010

Upcoming Potential Catalysts on the Forex Calendar:

• BOJ Summary of Opinions at 12:50 AM GMT (Aug. 7)
• Reserve Bank of New Zealand monetary policy statement at 3:00 am GMT (Aug. 7)
• German Industrial production at 7:00 am GMT (Aug. 7)
• French trade balance at 7:45 am GMT (Aug. 7)
• Swiss foreign currency reserves at 8:00 am GMT (Aug. 7)
• UK Halifax house price index at 8:30 am GMT (Aug. 7)
• Fed Evans speaks in Chicago at 2:30 pm GMT (Aug. 7)
• Canada Ivey PMI at 3:00 pm GMT (Aug. 7)

What to Watch: NZD/CAD

NZD/CAD 1-Hour Forex Chart

The Reserve Bank of New Zealand’s latest monetary policy and interest rate decision is likely the focus for currency traders over the next session, with expectations of another rate cut from 1.50% to 1.25% to the overnight cash rate. But we just got very strong quarterly employment data from New Zealand today, which kind of lowers the probability of a rate cut from the RBNZ in the upcoming Asia trading session. Whatever the decision may be, it’s highly likely the reaction in Kiwi pairs will be pretty strong and giving traders an opportunity for some quick pips or to set up longer-term plays.

And we’ll pair that notion with the Canadian dollar, which should see a pickup in volatility in the upcoming U.S. trading session with the latest Ivey PMI number to give us a sense of how businesses are feeling in Canada. This is a leading indicator so if we see a big surprise from the previous read of 52.4, the Loonie may see a busy Wednesday session.

For NZD/CAD bears, the current price action is on your side with the market trending lower, going all the way back to its March’s highs just under the 0.9300 handle. Recently though, the market has stalled a bit, ranging between 0.8600 and 0.8700 over the past week.

So, a logical short setup would be to wait for a retest of the top of the range and reversal candles back to the downside to form on a bearish reaction the the RBNZ event before considering a short position.  Or a downside break of the 0.8600 is a viable signal that could draw in momentum sellers if the event is negative for the Kiwi.

For NZD/CAD bulls, if the RBNZ breaks expectations and holds interest rates steady, a bullish Kiwi reaction could be in the cards, and a simple upside break of the top of the range around 0.8700 could be the signal for a long position on NZD/CAD. This would be a counter trend idea, so it’s prudent to greatly limit the risk (tight stop and/or small position size) and build up if the position does go your way, especially if Canada’s Ivey PMI update disappoints.