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NZDUSD Poised for Bullish Breakout as RBNZ Looks to Normalize

NZDUSD Poised for Bullish Breakout as RBNZ Looks to Normalize

David Song, Strategist

- Reserve Bank of New Zealand to Preserve Current Policy

- RBNZ Governor Stephen Poloz to Speak at 17:05; Testimony at 21:10

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

The Reserve Bank of New Zealand (RBNZ) is widely expected to keep the benchmark interest rate at 2.50%, but the fresh batch of central bank rhetoric may spark a bullish breakout in the New Zealand dollar should Governor Graeme Wheeler adopt a more hawkish tone for monetary policy.

What’s Expected:

Time of release: 09/11/2013 21:00 GMT, 17:00 EDT

Primary Pair Impact: NZDUSD

Expected: 2.50%

Previous: 2.50%

DailyFX Forecast: 2.50%

Why Is This Event Important:

Indeed, the central bank head may highlight a greater risk for an asset bubble as the economic recovery gathers pace, and the RBNZ may show a greater willingness to start normalizing monetary policy as households and businesses continue to take advantage of record-low borrowing costs.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Card Spending- Retail (MoM) (AUG)

0.6%

0.8%

QV House Prices (YoY) (AUG)

--

8.5%

REINZ House Sales (YoY) (JUL)

--

14.7%

Rising home prices along with the ongoing pickup in private sector credit may raise the risk of seeing a housing bubble, and Governor Wheeler may show a greater willingness to lift the benchmark interest rate off the record-low in order to balance the risks surrounding the region.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Manufacturing Activity Volume (QoQ) (2Q)

--

-3.4%

Trade Balance (JUL)

-16M

-774M

ANZ Business Confidence (AUG)

--

48.1

However, Mr. Wheeler may make further attempts to limit the strength in the New Zealand dollar amid the slowdown in global trade, and the central bank head may continue to employ verbal intervention to encourage a help address the trade deficit.

How To Trade This Event Risk(Video)

Bullish NZD Trade: RBNZ shows greater willingness to hike rates

  • Need green, five-minute candle following a hawkish statement to consider a long NZDUSD trade
  • If market reaction favors a long trade, buy NZDUSD 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: Wheeler strikes dovish tone; uses verbal intervention

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

Potential Price Targets For The Rate Decision

NZDUSD Daily

Forex_NZDUSD_Poised_for_Bullish_Breakout_as_RBNZ_Looks_to_Normalize_body_ScreenShot099.png, NZDUSD Poised for Bullish Breakout as RBNZ Looks to Normalize

Daily Chart - Created Using FXCM Marketscope 2.0

  • Stuck in broad range dating back to June; Relative Strength Index capped by 62
  • Interim resistance: 0.8100 & 81.70-80 ( 38.2% & 50.0% retracements)
  • Interim support: 0.7910-20 (23.6% retracement) to 0.7970-80 (50.0% retracement)

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)

JUL 2013

07/24/2013 21:00 GMT

2.50%

2.50%

+44

+147

July 2013 Reserve Bank of New Zealand Interest Rate Decision

Forex_NZDUSD_Poised_for_Bullish_Breakout_as_RBNZ_Looks_to_Normalize_body_ScreenShot093.png, NZDUSD Poised for Bullish Breakout as RBNZ Looks to Normalize

As expected, the Reserve Bank of New Zealand retained its current policy in July, but showed a greater willingness to start normalizing monetary policy and said that ‘the extent of the monetary policy response will depend largely on the degree to which the growing momentum in the housing market and construction sector spills over into inflation pressures’ amid the growing threat of an asset bubble. Indeed, the New Zealand dollar pushed higher following the rate decision, with the NZDUSD climbing above the 0.7975 region, and the higher-yielding currency continued to gain ground throughout the day as the pair closed at 0.8076.

--- Written by David Song, Currency Analyst

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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