NZD/USD Range Contingent On Dovish RBNZ
How stable is the NZD/USD Range?
Trading Tip – Today’s bounce from the 200-Day SMA could be a sign that upside potential is increasing, especially considering the level of concern during early trading. Credit rating agency Fitch placed Portugal on a negative watch list which reignited concerns that the credit issues in Greece could develop into a contagion for the region. Risk trends may lose influence as we approach the upcoming RBNZ rate decision. The central bank is expected to remain on hold, but the possibility remains that they may chose to follow the RBA which raised rates for a fourth time since their tightening cycle began. If we hit our entry on the back of volatility generated by an unexpected change in monetary policy, it is prudent to refrain from entering a position until the post release price action moderates. If we see a period of consolidation ahead of the event risk followed by a bearish reaction to a rate hold then our trade would be negated. However, a break below the 200-Day SMA could present an opportunity to get short as a test of the lower band would become likely.
Event Risk for Europe and U.S.
New Zealand – The RBNZ rate decision is the most significant event risk during a week of major releases. Policy markers are expected to remain on hold as they have targeted mid-year for a possible rate hike. Governor Bollard is waiting for evidence that the recovery is self sustaining before embarking on a tightening policy. Beforehand, the terms of trade 4Q release will cross the wires and could generate some volatility as an improvement will raise the outlook for growth. Following the policy decision the retail sales report for January may be overlooked as post release comments may determine any new trends. Regardless, the expected 0.5% improvement in consumption should raise the outlook for interest rates which could generate bullish “kiwi” sentiment.
U.S. – The major upcoming event risk for the dollar is the advance retail sales report which is forecasted to show a 0.1% decline as snow blanketed large parts of the country during February. The U.S. economy lost another 36K jobs during the month which is expected to weigh on domestic growth. Initial jobless claims will cross the wires ahead of the consumption figures which deserve attention given the volatility the weekly report has been generating. Traders will be looking for clues as to whether the labor market is improving or continuing to shed jobs. The U.S. trade balance will be released at the same time and evidence that demand from abroad is sustaining will raise expectations for future growth. Surging exports was a major reason for the economy seeing a 5.9% improvement in GDP during the fourth quarter.
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