Currency market: RBNZ, NZD/USD, USD/JPY

The RBNZ raises to.75 from  0.50 was accomplished to combat Inflation in line with the RBNZ mandate to maintain Inflation between 1 to 3%. OCR at 0.25 and Inflation at 4.9% was a forced move to raise by the RBNZ yet it was also a smart move.

The RBNZ had 2 choices and the same 2 choices for all central banks. Raise interest rates or restrict the money supply. The RBNZ choice was raise interest rates while the Fed and other central banks are on the path to restrict money supplies so not to touch the interest rate. prior to QE, central banks would've all raised in a New York second to protect the economy.

Among all central banks, the RBNZ is by far the smartest but also the most independent as they act for the good of New Zealand first without regard to other central banks.

By OCR raise even by 25 points, the move was a lateral move with no effect to market instruments. The 10 year yield dropped 13 points since November 24, 14 points to the 2 year and 20 points to the 5 year and 6 points to the 90 day.

Rather than the trade to above interest rates, the effect to the exchange rate by 0.25 as primary importance was nothing and a fat zero effect. Seen in the day trade. Seen from overall RBNZ interest rates contained zero effects.

NZD/USD broke 0.6846 and traded to 0.6779 or 67 pips. Raise or no raise, NZD was trading lower upon the 0.6846 break.

Interest rates changed since 2016. The overnight rate once traded freely and closed at various points depending on trade for the day. Interest maturities also traded freely and closed based on market moves. Daily, a distance existed between the new overnight rate and maturities. A large distance meant good volatility for the next trade day while short distances experienced small ranges and no volatility. 

Overnight rates today are held purposefully in tiny ranges and close based on the small range. FED Funds for example closed at 0.08 for many past months. The work, trading and profits is the result of trade in maturities. Maturities never trade far from overnight rates. And this restricts exchange rate movements by the post 2016 methods.

While the RBNZ raised 25 points, maturities maintained pace with 75 so the effect to the exchanger rate was literally zero. Movement to NZD is not the result of 50 or 75 but based on the interest rate structure which didn't change at all, not one iota. If the RBNZ held steady without a raise then no difference existed to NZD. The choice was higher above 0.6846 or lower below 0.6846.

While focus on 75, raise, lower, or hold steady, the difference between FED, ECB, BOE or any central bank interest rates is the same old thing. The effect to the exchange rate is the exact same from central bank to central bank.

Interst rate numbers appear different because of appearance of large numbers between central banks but its the exact same to exchange rates.

 Was the RBNZ raise a dovish or hawkish move is an irrelevant question. The move was lateral with zero effect. Interest rate numbers are pertinent to the economics to any particular nation's system but not to the exchange rate when measured against another central bank.

If the RBNZ moved in a much bolder way by an enormous raise or lower then central banks would've called emergency meetings to match the move as the exchange rate is most important nation to nation. Central banks won't ever allow a particular nation to gain large advantage to exchange rates.

See the lessons from the 1930's exchange rate wars and a fascinating read. Today's trade methodology gained from the 1930's is never to allow exchange rates nation to nation to trade far from each other. The example from the 1930's is never to allow a nation to gain export advantage over another nation. To do so would bring the same exchange rate wars as in the 1930's or a battle to adjust massively interest rates.

The greatest battle of the 1930's was the French Franc Vs GBP as nations sought to destroy GBP by sheer central bank collusion to beat GBP in exports.

NZD/USD 5 numbers for today, 0.6758, 0.6771, 0.6779, 0.6810 and 0.6828.

NZD/JPY

For interested, NZD/JPY achieved target at 76.00's from 80.00's and 81.00's. JPY cross pairs for November profited 2000, 2500, 3000  pips?

Merit and trade skills moved to irrelevant status today in favor of cheap subscriptions and social media views. The competition today for subscriptions is race to the bottom to achieve greater subscriptions than the next guy and to watch screens all day.

USD/JPY

Weekly Trade as posted: short 113.70 and 113.89 to target 113.11. Highs achieved 113.94 and lows to 113.11 for +83 pips.

Most vital as written is the break at today's 112.95 to decide higher or lower. A big break and USD/JPY traded to 112.68 or + 27 Pips.

USD/JPY is now on the way to the 109 target.

USD/JPY 5 vital numbers for today: 112.61, 112.82, 113.01, 113.46 and 113.77. USD/JPY is at day's bottoms, long.