Now is the time to focus on fundamentals. More specifically, how the market responds to fundamental news.
There are four currencies that have had extended runs this month.
- NZD
- AUD
- GBP
- CAD
The moves are overdone but the time to fade them won’t come until they no longer rally on good news.
Events to watch in the day ahead:
1) RBNZ decision. Officials have pledged to keep rates unchanged through year-end but is watching housing and construction. If the bias tilts more hawkish, watch to see if NZD joins in.
2) Australian employment report. If the report is stronger than expected (10K jobs and 5.8% unemployment is the consensus) and AUD/USD doesn’t rally, it could signal a near-term top. However, of all the currencies listed here, AUD is most likely to embark on an extended rally because speculators are heavily short AUD.
3) Carney testifies in Parliament. Look for an optimistic tone on the economy. If he makes some upbeat comments and GBP doesn’t rally, look for a pullback.
4) Watch stocks for clues on CAD. The S&P 500 is up 7 days in a row. If signs point to an 8th day of gains and CAD doesn’t participate, bet against the loonie.
