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WEEK AHEAD: APRIL 12

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This week there is the RBNZ meeting, China Q1 GDP data and the beginning of Q1 earnings season. I take a look at the NZD/USD forex pair. Thanks! Rich

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RBNZ, China GDP, Q1 Earnings | FOREX WEEK AHEAD (Apr 12-16, 2021)

 

 

Hi everyone, I’m here as usual to look ahead to another week in forex and financial markets. The three biggest events for me next week are the RBNZ meeting, China GDP data and the start of Q1 earnings season, so I will discuss those and what it all means for the NZD/USD forex pair. 

NZD/USD has formed a tweezer bottom candlestick pattern on the weekly chart at just below the 0.70 level. The zone around 0.70 has acted as support and resistance in recent years- most recently in March 2019. The price has been moving lower on the daily chart but remains above the 200-day moving average, meaning the medium-term trend is still higher.

Looking at the economic calendar, the first major bit of data for the week will be US CPI where the expectation from economists is that it will jump to 2.4% in March. Remember the Fed targets 2% inflation and, in theory, is supposed to raise rates when inflation moves above target – although they’ve said they won’t this time. The RBNZ is expected to keep rates steady at a record low 0.25% on Wednesday. US retail sales are expected to have jumped in March as multiple US states reopened stores. Then a big one to finish the week is China Q1 GDP, where the economy is expected to build on the previous reading of 6.5% year-over-year. Incidentally the IMF just raised its forecast for China GDP to 8.4% for 2021.

Outside of the economic calendar its worth noting that this week is the beginning of first quarter corporate earnings season. As usual the big banks kick it off with the likes of JP Morgan, Goldman Sachs and Citigroup all reporting results on Wednesday through Thursday.

Bank stocks have been some of the best performers in Q1 after a pretty awful 2020. To a large extent, they have been benefitting from the same thing that has helped the US dollar do well in the first quarter – higher bond yields. The higher bond yields represent expectations of a stronger economy, which is good for bank lending – and also higher interest rates mean banks can make more from the loans they make.

Naturally, the Kiwi dollar has stumbled while the US dollar has strengthened in the past few weeks. The Kiwi dollar has been a notable underperformer because of planned government regulation aimed at cooling a very hot New Zealand housing market. It’s thought that the new rules will discourage investment in New Zealand and hurt the economy. That’s what makes the RBNZ an important factor here – because the ultra-low interest rates have encouraged a lot of people to buy homes in New Zealand, pushing up prices. So now the New Zealand central bank has a new remit to consider not just inflation but also house prices when it sets monetary policy. 

None of the surveyed economists think the RBNZ will hint at this meeting that it will raise rates to offset rising house prices but markets are pricing in a 14% chance that interest rates will be higher in December 2021 – that makes New Zealand the only developed nation where a rate hike is priced in for this year. 

Right thanks everyone, good luck trading this week and make sure to subscribe so you don’t miss the next episode of the week ahead.
 

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