NZD/USD: Bears in control ahead of the RBNZ event

In G10 FX, commodity currencies are broadly weaker with NZD/USD -0.06% at the time of writing, after US President Trump signed a bill supporting Hong Kong protesters, which raised concerns about a likelihood of a so-called, "Phase-One' deal being reached. NZD/USD has been travelling from a high of 0.6430 to a low of 0.6402. 

The news that Trump signed the Hong Kong Human Rights Democracy Act inevitably sparked a flurry of statements from the Chinese. China's Foreign Ministry made statements as follows: 

• Severely meddles with China’s internal affairs. Severely violates international law. Opposes US law on Hong Kong.
• US attempts to move in on Chinese affairs are doomed to fail. The Act seriously interferes in the internal affairs of China violating international laws and basic principles of foreign relations.
• China will take firm countermeasures if the US continues in this way. 
• US will have to shoulder all consequences if it continues this way. 

However, while markets are trading on the air of caution, the consensus is that a phase-one deal will still be inked before the 15th December when US-China import tariffs are scheduled to rise by 15% and hence, we have not seen a complete collapse in risk appetite for which the bird would otherwise have been trading a lot lower. 

On the domestic front, the bird caught flight on the ANZ activity outlook which rose to 12.9 while business confidence climbed to -26.4 in November, from -3.5 and -42.4, respectively in the previous month. Both of these readings were at their best levels since December last year – NZD/USD subsequently rallied from 0.6412 to 0.6430 on the release before the Chinese/US related slide to a low of 0.6408. Indeed, it was a positive set of data ahead of the highly anticipated Reserve Bank of New Zealand meeting, due next Thursday 5 December.

RBNZ in focus

"The market will be interested to see if there is any softening to the initial proposals following the round of public consultations," analysts at ANZ Bank, (ANZ), explained. "The FSR noted that the RBNZ is considering alternative capital options, refining its costs and benefits analysis, re-considering interest rate impacts, and assessing transitional impacts in light of feedback received. Time will tell," the ANZ analysts added. 

NZD/USD levels 

The price dropped below the 21 4-hour moving average while price hugs the 38.2% Fibonacci level of the late July swing highs to late Sep swing lows range. Bulls can look to the 50% mean reversion of the same range around 0.65 the figure. On the flipside, a break below the 21-DMA opens risk to the Nov lows at  0.6341.