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NZDUSD to Breakout on RBNZ Rate Hike Timeline

NZDUSD to Breakout on RBNZ Rate Hike Timeline

David Song, Gregory Marks,

- Reserve Bank of New Zealand Sees Rate Hike in 2014; More Verbal Intervention?

- RBNZ Governor Stephen Poloz to Speak at 15:05 & 19:10 EST

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

The Reserve Bank of New Zealand’s (RBNZ) last meeting for 2013 may spark a bullish breakout in the NZDUSD should the central bank lay out a more detailed timeline for its exit strategy.

What’s Expected:

Time of release: 12/11/2013 20:00 GMT, 15:00 EST

Primary Pair Impact: NZDUSD

Expected: 2.50%

Previous: 2.50%

DailyFX Forecast: 2.50%

Why Is This Event Important:

Despite talks of a currency intervention, Governor Graeme Wheeler may sound more hawkish this time around as the central bank prepares to normalize monetary policy in 2014, and the growing threats of an asset-bubble may prompt the RBNZ to implement a rate hike within the first-half of the following year in order to balance the risks surrounding the region.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

QV Home Prices (YoY) (NOV)

--

9.2%

Employment Change (QoQ) (3Q)

0.5%

1.2%

Consumer Price Index (YoY) (3Q)

1.2%

1.4%

Indeed, rising home prices along with the ongoing pickup in private sector activity may heighten the risk of seeing a housing bubble, and Governor Wheeler may show a greater willingness to raise borrowing costs in the coming months as the economic recovery gradually gathers pace.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ANZ Commodity Price (NOV)

--

-0.4%

Retail Sales ex Inflation (QoQ) (3Q)

0.9%

0.3%

Private Wages ex Overtime (QoQ) (3Q)

0.5%

0.4%

However, Mr. Wheeler may take a more preserved approach in implementing the exit strategy amid the ongoing margin of slack in the real economy, and the central bank may merely reiterate the policy statement from the October meeting as the RBNZ continues to weigh the outlook for global growth.

How To Trade This Event Risk(Video)

Bullish NZD Trade: RBNZ Delivers Detailed Schedule for Normalization

  • 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 Strengthens 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_to_Breakout_on_RBNZ_Rate_Hike_Timeline_body_Picture_2.png, NZDUSD to Breakout on RBNZ Rate Hike Timeline

Daily Chart - Created Using FXCM Marketscope 2.0

  • Threatens Downward Trending Channel From October; Carving Lower High?
  • Topside RSI Break Points to Further NZDUSD Strength
  • Interim resistance: 0.8060 (38.2% retracement) to 0.8100 Pivot
  • Interim support: 0.8360 (23.6% expansion) to 0.8400 Pivot

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)

OCT 2013

10/31/2013 20:00 GMT

2.50%

2.50%

flat

+5

October 2013 Reserve Bank of New Zealand Interest Rate Decision

Forex_NZDUSD_to_Breakout_on_RBNZ_Rate_Hike_Timeline_body_Picture_1.png, NZDUSD to Breakout on RBNZ Rate Hike Timeline

Once again as economists expected, the RBNZ left its key benchmark interest rate at 2.50% and this led to little change in the Kiwi throughout the rest of the trading day. The central bank noted that the rate was likely to remain at 2.50% through 2013 and that a rate hike in 2014 would most likely occur. As Gov. Wheeler at the RBNZ hopes to keep the Kiwi low for as long as possible before the need to raise rates, a policy statement is likely to be muted as to not upset recent price action to the downside in the Kiwi. As for FX intervention to devalue to the New Zealand Dollar, market participants continue to take Gov. Wheeler’s rhetoric as just that.

--- 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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