NZD: Steady, USD Bears Looking For 0.5885-0.5915 To Hold

In answering a question, Governor Breman said that the MPC discussed whether to hike rates today to pre-emptively act against rising inflation but the discussion was balanced looking at the risks to the already soft recovery from higher fuel prices which higher rates would exacerbate. Therefore, policy was left on hold.

• The MPC was not close to hiking rates today with no “strong advocate”. The discussion was centred around an early move meaning fewer increases would be needed overall.
• The RBNZ is focused on the medium-term and currently doesn’t see an inflation problem over that time horizon, which meant that at this stage there was no reason to tighten policy.
• Substantial spare capacity should weigh on medium-term inflation and the slight tightening in financial conditions from recent global disruptions, which has driven mortgage rates higher, on near-term growth.
• The RBNZ doesn’t normally update its staff forecasts at policy review meetings with the next full set scheduled on 27 May, including the OCR path. However, given recent Middle East events it did provide limited near-term headline CPI updates with Q1 expected around 3% but Q2 up to 4.2%, based on global oil and domestic fuel prices from 7 April. Q2 may be revised lower if the ceasefire announced today holds. Pass through to transport and air freight and some to food prices is assumed but remains highly uncertain.
• Chief Economist Conway clarified that the future OCR track will be very conditional on how the economy evolves and how the near-term rise in inflation impacts the medium-term but also how the latter is affected by softer growth. The outlook remains highly uncertain.
• The RBNZ’s business survey found that some businesses will increase prices through a temporary fuel surcharge, some will increase them directly while others aren’t able to pass on higher costs as customers won’t accept it.

The EUR/USD range overnight  was 1.1533-1.1605, Asia is currently trading around 1.1670, + 0.70%. The pair surged higher, easily breaking back above its resistance in the 1.1650 area. The pair remains above its pivotal support in the 1.1400 area for now and the ceasefire announcement has seen the pair put a short-term base in. I got this wrong regarding Trump and even though I remain skeptical the price action tells you the market is looking through any negatives for the moment. This should keep the EUR supported now on dips in the short-term while the ceasefire holds. On the day, first support is back toward 1.1600-1.1630 with the bulls looking to test the 1.1800 area. I would not be fighting this price action but would stubbornly be waiting to see how high the pair can squeeze before some reality sets in.

• Danny Citrinowicz on X: “The war isn’t over but the picture that’s emerging is already deeply troubling. Based on the NYT piece it is obvious that this war was launched with sweeping promises: regime change in Iran, the dismantling of its missile and nuclear programs, and preventing it from threatening the Strait of Hormuz.”
• “At the very least, one has to hope that the negotiations in Islamabad will produce a different outcome on the nuclear issue. Otherwise, we risk emerging from this war worse off than when it began.”
• “Because if the end state leaves Iran’s nuclear capabilities fundamentally intact, then the strategic reality after the war will not just fall short of expectations, it will be unequivocally worse than at the outset.”  https://x.com/citrinowicz/status/2041664170488205730?s=20
• Options : Closest significant option expiries for NY cut, based on DTCC data: 1.1625(EU1.8b). Upcoming Close Strikes : 1.1450(EU1.81b April 9), 1.1450(EU1.97b April 13), 1.1500(EU2.24b April 9) - BBG
• The EUR/USD Average True Range for the last 10 Trading days: 83 Points

Fig 1 : EUR/USD Spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P

The BBDXY range overnight was 1210.32-1215.11, Asia is currently trading around 1202, -0.70%. The BBDXY has collapsed lower as the Trump “TACO” played out. I certainly got that wrong and thought he would not bow to their demands. The price action has been swift and though you could argue about the contents of the agreement and doubt its ability to hold you can’t argue with the price action. The USD has been swiftly sold across the board and will probably continue to trade heavy in the short-term. On the day, I suspect a rally back towards 1207-1210 could now find sellers initially as the longs pare back their exposure. First support is toward the 1195-1200 area, a sustained break below 1195 would be problematic for USD longs and could signal another leg lower. Again I am very skeptical of this ceasefire, chief among my doubts is Trump saying Iran’s 10 point proposal is a workable basis from which to negotiate, but the market looks like it will run with the glass half-full for now. Some discrepancies already appearing as "NETANYAHU SAYS DEAL DOESN'T COVER HEZBOLLAH IN LEBANON: AP" - BBG.                    

• Arnaud Bertrand on X: “The most surprising aspect of Trump's statement is that he himself says he agreed to negotiate on the basis of Iran's 10-point plan. Surprising because just yesterday he said that plan was "not good enough” and, above all, surprising because that plan essentially demands capitulation from the U.S.”
• Faytuks News on X: “The two-week ceasefire plan includes allowing both Iran and Oman to charge fees on ships transiting through the Strait of Hormuz, a regional official tells AP.”
• The BBDXY Average True Range for the last 10 Trading days: 7.45 Points

Fig 1: BBDXY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P