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NZD/USD Holds 0.8550 Support- Need Hawkish RBNZ for Higher High

By , Currency Analyst  and Gregory Marks
23 April 2014 16:00 GMT

NZD/USD needs support from RBNZ

- Reserve Bank of New Zealand to Raise Rates for Second Straight Meeting.

- Market Participants Pricing 97% Chance for 25bp Rate Hike According to OIS.

Trading the News: Reserve Bank of New Zealand Interest Rate Decision

According to a Bloomberg News survey, all of the 15 economists polled anticipate the Reserve Bank of New Zealand (RBNZ) to deliver another 25bp rate hike in April, but the statement accompanying the rate decision may have a greater impact on the NZD/USD as market participants weigh the outlook for monetary policy.

What’s Expected:

NZD/USD RBNZ

Why Is This Event Important:

Indeed, fresh commentary from RBNZ Governor Graeme Wheeler may keep the New Zealand dollar afloat as the board retains a hawkish tone for monetary policy, and NZD/USD may continue to carve higher highs & higher lows should the central bank continue to deliver a series of rate hikes in 2014.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ANZ Consumer Confidence (MoM) (APR)

--

1.1%

Trade Balance (FEB)

600M

818M

Westpac Consumer Confidence (1Q)

--

121.7

The RBNZ may lay out a more detailed exit strategy amid the pickup in global trade along with the ongoing improvement in the labor market, and a further shift in the policy outlook should prop-up the higher-yielding currency as the central bank moves away from its easing cycle.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (1Q)

1.7%

1.5%

REINZ House Sales (YoY) (MAR)

--

-10.0%

Gross Domestic Product s.a. (QoQ) (4Q)

0.9%

0.9%

However, the RBNZ may sounds less hawkish this time around as the cooling housing market reduces the threat of an asset-bubble, and the New Zealand dollar may face a larger decline in the days ahead should the central bank soften its approach in normalizing monetary policy.

How To Trade This Event Risk(Video)

Bullish NZD Trade: RBNZ Pledges More Rate Hikes for 2014

  • Need green, five-minute candle following a hawkish statement to consider a long NZD/USD trade
  • If market reaction favors a long Kiwi trade, buy NZD/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from cost; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is met, set reasonable limit

Bearish NZD Trade: Governor Wheeler Softens Hawkish Tone for Monetary Policy

  • Need red, five-minute candle to favor a short NZD/USD trade
  • Implement same strategy as the bullish New Zealand dollar trade, just in opposite direction

Potential Price Targets For The Rate Decision

NZD/USD Daily

NZD/USD Daily Chart

Daily Chart - Created Using FXCM Marketscope 2.0

  • Fails to Preserve Ascending Channel; Searching for Higher Low?
  • Bearish RSI Divergence Highlights Risk for Larger Decline
  • Interim resistance: 0.8750-60 (78.6% expansion)
  • Interim support: 0.8430 (23.6% retracement) to 0.8460 (38.2% expansion)

Impact that the RBNZ Interest Rate Decision has had on NZD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR 2014

03/12/2014 20:00 GMT

2.75%

2.75%

+60

+80

March 2014 Reserve Bank of New Zealand Interest Rate Decision

rbnz rate table

As expected, the RBNZ upped its official cash rate to 2.75% at the March meeting from 2.50% previously. Although we saw chop at the print, the NZD/USD rate went as high as 130 pips from the rate at the release. Once again it is expected that we will see a 25bps hike in rates, although weaker than expected CPI data for the month of March does pose a risk. The RBNZ could choose to hold back on a rate hike and let such a failure to raise rates weaken the Kiwi exchange rate. A surprise of more than 25bps in hikes could help the Kiwi regain strength lost over the past two weeks.

--- Written by David Song, Currency Analyst and Gregory Marks

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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23 April 2014 16:00 GMT