The contrast between the more hawkish-than-expected Reserve Bank of New Zealand and the Reserve Bank of Australia's surprisingly dovish rate decision is likely to send the AUD/NZD cross lower in the week ahead.

The RBA scaled back their tightening efforts with a 25 basis-point hike on Tuesday, when there was a clear consensus they would hike 50 bps for the fifth straight meeting.

The RBNZ followed on Wednesday by delivering the forecast 50 bps increase, but revealed they debated a 75 bps hike.

The RBNZ statement and minutes were unambiguously hawkish, focussing on inflation pressures arising from a tight labour market - without highlighting downside risks to the economy, as some commentators had expected.

The Click here the risks of a weaker NZD, stating: "a lower New Zealand dollar, if sustained, poses further upside risk to inflation over the forecast horizon."

The RBA didn't mention the exchange rate in Wednesday's statement, which suggests to the market the central bank is not as concerned as its counterpart across the Tasman.

AUD/NZD trended higher through much of September, as the five, 10 and 21-day moving averages stayed in a bullish alignment and were tilting higher.
The trend stalled last week and ended Wednesday when the cross dived below the 21-DMA at 1.1304.

It is now testing the 50% retracement of the 1.0991-1.1496 move at 1.1244 and a break targets the 61.8 Fibonacci retracement at 1.1184. A test of the key 100-DMA support at 1.1120 is the objective of the current drop.

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• RBNZ hiked cash rate 50 BPs to 3.50% and indicated a resolve to do more nAZN0LZ52X

• Statement and minutes hawkish as RBNZ considered hiking 75 BPs today nS9N2UZ01Y

• RBNZ relatively upbeat on economy and their focus in on capping inflation

• NZD/USD is above 0.5770 - up from 0.5730/35 before the decision

• Resistance is at the 21-day MA at 0.6865 and break would end downtrend

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• -0.05% early after closing down 0.3% with the U.S. dollar broadly lower

• The USD fell, but Treasury yields only edged lower, supporting USD/JPY

• A seventh day of choppy consolidation below 145/146 BoJ intervention level

• If UST yields continue to consolidate or ease, 145/146 a potential top

• Charts; rising Kijun line held on BoJ intervention - pivotal 142.09 support

• New York 144.94 high is first resistance then Monday's 145.40 peak

• Late New York 143.90 low then 143.58 Tenkan line are initial supports

• Broad 143.00-146.00 range viable this week unless there is major news

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• EUR/USD opens +1.67% after USD eased on soft US JOLTS and falling US yields

• Subtle dovish shift in Fed expectations led to heavy EUR/USD short-covering nL1N3151BI

• It closed above 21-day MA (0.9897 - signalling end of short-term trend lower

• The 21-day MA at 0.9897 is now support and break would ease upward pressure

• A down-trend line drawn from Feb 10 at 1.0053 is key resistance

• Option related selling around 1.0000 may cap rallies in Asia

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• USD/JPY on the defensive after declining 0.35% Tue on broad dollar weakness

• Undermined by lower US yields as job openings drop sharply nL1N315178

• Signs of a cooling of US labor market raises hopes of inflation subsiding

• USD interim top forms as constant threat of Japan FX action limits rallies

• Hawkish Fed expectation to limit downside; ISM non-mfg Wed, NFP Fri key

• Below 143.80 (21-DMA) opens 143.20; resistance 144.40-50, 144.90-145.00

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• USD/JPY fell back below the 10-DMA at 144.15 on Tuesday

• Drop is being squeezed toward the rising 21-DMA at 143.75

• Massively widened 21-day Bolli band spreads collapse targets 21-DMA next

• Key supports are the tenkan and kijun lines, last at 143.10 and 141.97

• A 145+ close is needed to resume the rise toward 1998's 147.64 peak

• 145 was trend high prior to 145.90 peak and 100% Fibo off of Aug's base

• Value bid above the tenkan in lieu of a 145+ close buy signal

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• USD/JPY breached the 10-DMA prop at 144.16 after soft JOLTS data

• First time below 10-DMA since qtr-end post-intervention rebound

• Prices also unable to post a close above the pivotal 145 level

• Broader USD risk-on weakness and MoF threat weigh

• Possible yen repatriation after N. Korean missile launch over Japan

• ISM non-mfg Wed, NFP Fri eyed after Fed hike pricing peaked in Sept.

• The 21-DMA and tenkan are next props, last at 143.76/10

• Good US data and a 145+ close are key to retesting 145.90 EBS peak

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Barclays Research discusses its expectations for tonight's RBNZ policy meeting. 

"We expect the RBNZ (Wed) to hike its policy rate by 50bp to 3.50%, broadly in line with OIS market pricing of 52bp. The in-line rate hike should provide little boost to the currency, but RBNZ guidance and assessment of growth-inflation outlook should have a bigger impact on sentiment towards it. The relatively strong fiscal position should also boost the NZD, in our view, reinforced with the Treasury releasing government financial statements (Wed) and the Finance Minister speaking at an event (Thu)," Barclays notes. 

"Rate differentials moved in the NZD’s favor last week; 1y ahead RBNZ OIS climbed 14bp to 4.85%, while 10y NZGBs cheapened 12bp, in contrast to the move lower in Fed pricing and rally in UST," Barclays adds. 

EUR/USD rose 1.6% by New York midday on Tuesday, erasing all of its post-Fed meeting and UK-led risk-off losses, with parity nearby after weaker-than-forecast JOLTS nAQN1UT0O7 reinforced suspicions peak Fed hikes have already been priced in.

Previous EUR/USD corrections of its Fed-tightening led downtrend this year ran into a well-defined downtrend line from February and the 13-week moving average, now at 1.0070/37.

Rebounds within the downtrend since April have also been thwarted by the daily cloud base, currently at 1.0066 and set to flatten out next week by 1.0050.
A close above those hurdles after Friday's non-farm payrolls report could expand the recovery toward September's 1.0198 EBS high.

EUR/USD's rebound is largely corrective, catalyzed by the BoE's intervention to halt the meltdown in gilts, which ultimately tamed safe-haven dollar bids.

Key is whether the markets, having priced in peak Fed hikes just above 4.5% last week, will be affirmed or refuted by Wednesday's ISM services and Friday's jobs reports.

Big Treasury yield drops and October stock market gains fly in the face of the Fed's mantra of higher rates for longer to tame inflation nS0N30D03JnS0N30D03J.

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Credit Agricole CIB Research discusses its expectations for tonight's RBZN policy decision .

"We expect the RBNZ to hike rates another 50bp on Wednesday to take the OCR to 3.50% and further into restrictive territory. NZ’s growth has remained robust despite rapidly declining house prices, weak business & consumer confidence and higher rates & living costs," CACIB notes. 

"The RBNZ’s previous language on the exchange rate has been that its raising of rates has kept it higher than would otherwise be the case and that the lower exchange rate is feeding into inflation via higher import prices, but is also supporting exporters’ revenues," CACIB adds. 

• Speed and magnitude of the recovery from 1.0327 argues for a pullback

• A long upper candle shadow so far today smacks of demand fade

• We are short from 1.1380 for 1.0720 with a 1.1480 stop

• Positive momentum readings higher and moving averages are bullishly aligned

• For now we see correction risk but also wary of a bullish resumption

• Key levels to watch at 1.1738 and 1.0540, recent high-low

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Danske Research discusses the current condition of the FX markets. 

"The GBP volatility past weeks prompted concerns an FX crisis hit the G10 currencies. We acknowledge high volatility in FX market, but in our view, the market responded efficiently to large unforeseen shocks that includes negative energy supply shocks, fiscal easing and high inflation. We expect calm to return to FX markets, when central banks get control over inflation and the energy market find its feet, albeit it could take a couple of years," Danske notes. 

"G10 countries face, among other things, a current account crisis. The energy crisis and the fiscal response increased borrowing in most G10 countries; i.e. weakened current account balances. With higher borrowing follows a real exchange rate depreciation and a rise in real interest rates. If exchange rates and bond yields adjust efficiently to these changes, the root cause of market volatility lies in the sources of shocks to current account balances.

Coordinated FX intervention - in spirit if the 1985-Plaza accord - even if well intended, would be destabilising in our view. The market mechanism needs to do its job to help rebalance economies and external balances. FX intervention would slow this process and invite speculators to test currency misalignments," Danske adds. 

MUFG Research discusses its reaction to this week's RBA policy decision.

"The main macro surprise overnight was the RBA’s decision to deliver a smaller than expected rate hike. It marks a change from the recent run of hawkish policy updates from other G10 central banks. The RBA delivered a dovish policy surprise by hiking rates by 25bps rather than 50bps. It follows four consecutive 50bps hikes and brings total policy tightening to 250bps this year," MUFG notes. 

"The Australian dollar initially weakened following the RBA’s dovish policy surprise falling to an intra-day low of 0.6451 but has since climbed back above the 0.6500-level amidst the broad-based US dollar sell-off. A slower pace of RBA hikes should make the Australian dollar relatively less attractive going forward all else being equal," MUFG adds. 

AUD/USD has struggled so far in October, a month that usually sees this pair climb.
Signs are that it will buck that positive October seasonal trend this year.

An analysis of AUD/USD's October performance since 2000 shows it has risen in 15 of the past 22 years.

But seasonality should not be considered in isolation, and needs to be corroborated with other factors in order for it to be useful.
This is not currently the case.

Australia's dollar sank on Tuesday after the Reserve Bank of Australia (RBA) surprised markets with a smaller-than-expected interest rateincrease, a move that could continue to exert downward pressure on AUD/USD in the weeks ahead.

AUD/USD continuing to trade under the 0.6546 Fibonacci level, a 23.6% retrace of the 0.7136 to 0.6364 (August to September) drop, keeps the overall bias on the downside.

Fourteen-week momentum remains negative, reinforcing the overall bearish technical structure.
Only a weekly close above the 0.6546 level will shift the bias back to the upside.

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With the pound having broken lower out of long-term trading ranges and likely to remain soft, the GBP/USD rebound from 1.0327 to 1.1428 offers traders the opportunity to hedge the risk of enduring sterling weakness.

The slump towards parity was unexpected, but the drop seen before that move wasn't.

It was largely the result of U.S. monetary policy, which drove GBP/USD down from 1.4250, when the Federal Reserve announced a taper in June last year, to 1.1257, before the UK government announced measures blamed for the following plunge.

GBP/USD is now trading above the levels that previously resulted from technical and fundamental drivers that are unchanged.

The rally looks overdone, and the probability of a drop is heightened by this seeming bullish overreaction.
GBP/USD is likely to fall and stay down, with a strong chance parity is tested.

The furore since the mini-budget has weakened the UK government, resulting in infighting over future measures, and has spurred changes in financial markets that make future BoE decisions much more difficult.

That is unlike the situation at the Federal Reserve, whose policymakers remain overtly hawkish.

Stock market rallies allow the U.S. central bank to maintain the tightening cycle, and should the simultaneous surge in oil prices fuel inflation, it might encourage policymakers to be more aggressive.

Bad gambling may drive EUR/USD to a fresh year-low.

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• AUD/USD has fallen over half-a-cent since hitting 0.6547 at 0649 GMT

• 0.6547 was highest level since Sept 23 (0.6537 was last week's high)

• Ascent to 0.6547 fuelled by rise in risk appetite (AUD is risk-sensitive)

• 0.6451 was Asian session low, following RBA's 25 bps rate hike nL1N31504W

• Most economists expected the RBA to raise rates by 50 bps nL4N30Z39L

• Nikkei closed up 3%, its biggest daily gain since March nL4N31514P

• Cable hits 1.1418 (highest since Sept 20) after extending north from 1.1087

• 1.1087 was Monday's low, before UK govt's tax U-Turn lifted GBP nL8N31413V

• UK govt's fiscal plan is also being brought forward from Nov 23 nL1N31421L

• Risk-sensitive pound benefits from global equity gains too: Nikkei up 3%

• See: nL4N31514P. 1.1460 was Sept 20 high (day before 75 bps Fed rate hike)

• 1.1333 (Monday's high) is now a support point (1.1235 was Friday's high)

• EUR/CHF soars 0.9420-0.9770 partly thanks to stock rally nL1N31509Q

• SNB is in the midst of a huge change in policy nL1N3140S6

• Policy now weighing EUR/CHF after years when it provided support

• Unlikely to be short covering, virtually no spec bets on CHF rising IMM/FX

• If traders establish bets EUR/CHF rises, they bet against SNB

• EUR/CHF near top 20-day Bollingers 0.9790, it's almost overbought

• Pair should peak between 0.9790 and Sep high at 0.9866

• 
  

• Early in the week but last week's hammer candle is drawing confirmation

• Initial resistance at 1.1405, 76.4% Fibo off the 1.1738-1.0327 fall

• Minimum correction off the bigger 1.4250-1.0327 drop met at 1.1253

• We offer ahead of the Fibo for a resumption of the bear run

• Counter bias trade high risk and a tight stop to be set

• Squeeze point seen at the 10-week moving average, 1.1567

• Daily momentum readings are confirming price rise

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• AUD/USD down 0.65% as RBA's less than expected 25 bps hike surprises traders

• Recovers quickly after falling to 0.6451 from day high of 0.6518nL1N31504W

• C.bank balancing risks to growth while fighting inflation taken as positive

• Cites deteriorating outlook for global economy as reason for smaller hike

• Response of AU households to sharply higher borrowing costs also a factor

• AUD rallies likely to be limited as Fed remains focused on inflation fight

• Break of 0.6520-40 strong resistance required to signal s/term low in place

• More resistance at 0.6570-75; support 0.6450, 0.6420-25, 0.6390-0.6400

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• +0.15% towards top of 144.41-144.91 range - choppy consolidation extends

• Consumer prices in Tokyo +2.8%y/y - fastest pace since 2014 nL4N3143DT

• Buoyant markets, Nikkei +2.4%, E-mini S&P +0.5% and 10yr UST -1bp 3.646%

• A week of lower UST yields and intervention fears are capping USD/JPY

• Charts; rising Kijun line held on BoJ intervention - pivotal 141.97 support

• Monday's 145.40 high first resistance then September pre intervention 145.90

• This week's 144.16 low then 143.10 Tenkan line are initial supports

• Broad 143.00-146.00 range viable this week unless there is major news

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Sterling's recent strong bounce embraces an optimistic view that Britain's new government will change its ideological position on the economy. The devil will be in the details, but it seems unlikely.

Prime Minister Liz Truss and finance minister Kwasi Kwarteng came under intense pressure from within the Conservative party, the IMF, and the UK press over their 'trickle down' tax cut policies.

Monday's U-turn by the government was well received in markets, though S&P Global maintains its UK credit rating warning.

The question nowis whether Kwarteng's publication of his medium-term fiscal plan, brought forward to later this month, will hold water.

Ideologically the Truss team still believe they can grow the UK economy out of recession longer term, but markets need to be convinced they can fund a high-spending, low-tax agenda.

Meanwhile UK factory activity and orders fell, the cost-of-living crisis deepens and industrial unrestgrows.

Sterling is up 9.7% from its Sept 26 1.0327 low, trading at around 1.1310, after the Bank of England came to the rescue by reintroducing short-term quantitative easing.

Technically 5, 10 and 21-day moving averages conflict, indicating a neutral setup.
A sustained break of the 1.1295 21 DMA and 1.1309, 50% of the August-September fall, would target the 61.8% Fibonacci retracement at 1.1541.
A close below the 1.1064 10 DMA would be bearish.

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• AUD/USD tracking lower and ie edging below 0.6500 in early Asia

• Weakness is despite early Asian equity markets soaring and E-minis +0.60%

• Aus building approvals for Aug much higher than expected, but no reaction nAZN0LXTEF

• The building approvals are rubbery and rarely provoke an immediate response

• AUD/USD found resistance around the 10-day MA at 0.6514

• Sellers between 0.6520/40 have capped rallies since Sep 26

• Support is at yesterday's 0.6402 low with bids eyed around 0.6460

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• -0.05% after closing down 0.1%, with the U.S. dollar broadly softer

• Recent lower Treasury yields and intervention fears contain the topside

• Should UST yields consolidate at current levels - 145/146 should cap

• CPI for Tokyo +2.9%, against +2.8% poll - no yen impact nL4N3143CG

• Charts; Kijun line held after BoJ intervention, now pivotal 141.97 support

• Monday's 145.40 high first resistance, then pre intervention 145.90 high

• Yesterday's 144.16 low then 143.10 Tenkan line are initial supports

• Broad 143.00-146.00 range viable this week unless there is major news

  For more click on FXBUZ