The foreign exchange market froze in anticipation of key events of the trading five-day period. In general, we are waiting for the last week this year, which is very full of informative events. The final chord will be the EU summit, which will sum up the preliminary results for Brexit. Until then, the market will react to decisions of the central banks: the Bank of England, the Federal Reserve, and the Swiss National Bank will hold their meetings. Such a list will provide the market with increased volatility not only for dollar pairs, but also for many "crosses".
However, the New Zealand dollar was somewhat ahead of the events and jumped at the opening of the trading session by almost 100 points. For the NZDUSD pair, which recently was either in the flat or in the downward motion, such an impulse growth looked unusual. At the moment, the pair continues to demonstrate the upward movement, so traders need to consider in more detail the reasons for this movement to understand further prospects.
The main reason for the growth of the New Zealand dollar is an unexpected personnel decision. New Prime Minister Jacinda Ardern said today that the Reserve Bank of New Zealand will be headed by Adrian Orr. He will take office in March next year. It should be noted that in September of this year, Graham Wheeler, who headed the RBNZ from 2012, resigned. Acting head was Grant Spencer, who had previously been his deputy, in charge of financial stability. In general, Spencer continued the policy of his former leader, maintaining a cautious and "dovish" attitude. The market paid no particular attention to this fact, considering Spencer the most likely candidate for the post of chairman of the central bank.
However, the past parliamentary elections significantly changed the political picture in New Zealand. The political forces, which had been in opposition for almost 10 years, unexpectedly came to power and announced drastic changes, including the prospects for the Reserve Bank. Similar to the Fed, the new authorities want to introduce a double mandate for the RBNZ, including a full-time component. Personnel policy has also changed. Adrian Orr was previously deputy head of the New Zealand regulator (from 2003 to 2007), however, according to analysts, his policy will be somewhat different from the actions of Wheeler and Spencer.
It is worth noting that prior to work in the management of the RBNZ, Orr was the chief economist of the New Zealand branch of Westpac, and in the period from 1997 to 2000 - the chief manager of the economic department of the Central Bank. At the moment he heads the Pension Fund of New Zealand.
The market took his appointment positively, as traders now had hopes for changes in the context of tightening monetary policy next year. It is worth recalling that Wheeler "buried" these hopes, saying that the issue of increasing the rate will be relevant only "through the years."
In addition, Orr in his speech today positively assessed the state of the world economy, than inspired NZDUSD traders after a series of pessimistic projections.
Previously, the Minister of Finance of New Zealand (which in effect takes a key decision in appointing the head of the RBNZ) stated that the next chairman of the central bank should "fully support the process of reforming the central bank," otherwise the proposed candidacy will be rejected. Judging by the fact that Orr was officially presented as Grant Spencer's successor, he expressed the necessary confidence in carrying out the relevant changes.
Despite general optimism, traders should be warned that the "shelf life" of such information is short-lived. Just today, the economic calendar of the foreign exchange market is almost empty, and the US dollar is under the pressure of uncertainty ahead of the Fed meeting. Against the backdrop of such a vacuum, the NZDUSD bulls took advantage of the opportunity for a good correction, but without additional information levers, this upward movement will soon weaken. Tomorrow, the attention of the pair's traders will be focused on the release of the producer price index in the US, and then on the outcome of the Fed's meeting.
Thus, one can either consider short positions, or wait for confirmation of the northern movement.
From the technical point of view, the position of the NZDUSD bulls looks shaky. To form the indicator signal Ichimoku Kinko Hyo "Golden Cross", the pair must be steady at the current level or higher (that is above 0.6930). This signal will indicate a likely strong price movement, and since in this case the pair will already be between the middle and top lines of the Bollinger Bands indicator, this impulse movement will most likely be in the upward direction.
However, an alternative scenario is very likely. If today or tomorrow the price returns to its "initial position", that is below 0.6860, the indicator Ichimoku Kinko Hyo will form a completely different signal - a bearish "Line Parade". In this case, the pair will continue to decline to the bottom of the 68th figure, where the support level is located (the bottom line of the Bollinger Bands indicator).
