Since the beginning of the week, G10 currencies were range bound. The lack of major news, both on the political and monetary policy sides, has caused a collapsed of volatility levels. The CVIX (Currency Volatility Index) eased to 6.87%, the lowest level since September 2014. The 3m implied volatility in EUR/USD fell to 4.14%, while the one on USD/JPY eased to 7.92%. The FX market will likely remain flat-lined this week as investors await news about Trump’s Tax plan and developments about the Brexit negotiations.
Later today, the Reserve Bank of New Zealand (RBNZ) is expected to keep the OCR rate unchanged at 1.75%. Despite the fact that the Kiwi depreciated sharply since the end of July and that inflation surprised to the upside in the third quarter (1.9%y/y versus 1.8% median forecast), the central bank will likely refrain to shift to a hawkish tone. The RBNZ will certainly reiterated its call for a weaker New Zealand dollar as it would help to increase tradables inflation. After falling 0.65% yesterday, NZD/USD was up 0.20% to 0.6915 this morning.
On the technical side, the pair wasn’t able to validate a break of the 0.6860 support area and bottomed at 0.6718 on October 27th. In the absence of positive from the US, which will boost the greenback, a retracement of the NZD/USD is more than likely.
By Arnaud Masset