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NZD/USD to Carve Higher-Low on Hawkish RBNZ Forward-Guidance

NZD/USD to Carve Higher-Low on Hawkish RBNZ Forward-Guidance

2014-07-23 16:20:00
David Song, Strategist
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- RBNZ Expected to Raise the Cash Rate for the Fourth Consecutive Meeting.

- Benchmark Interest Rate of 3.50% Would Mark the Highest Level Since 2009.

Trading the News: Reserve Bank of New Zealand (RBNZ) Rate Decision

Despite expectations of seeing another 25bp rate hike from the Reserve Bank of New Zealand (RBNZ), the forward-guidancefor monetary policy will be the key focus as market participants see the central bank taking a pause from its normalization cycle.

What’s Expected:

NZD/USD RBNZ

Click Here for the DailyFX Calendar

Why Is This Event Important:

Indeed, the weaker-than-expected 2Q Consumer Price Index (CPI) has dragged on interest rate expectations as the resilience in the New Zealand dollar dampens the outlook for price growth, and the NZD/USD may face a larger correction over the near-term should the central bank soften its hawkish tone for monetary policy.

For Real-Time Updates and Potential Trade Setups on the New Zealand Dollar, sign up for DailyFX on Demand

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ANZ Consumer Confidence (MoM) (JUN)

--

0.6%

Trade Balance (MAY)

250M

285M

Employment Change (QoQ) (1Q)

0.6%

0.9%

The pickup in household confidence along with the ongoing improvement in employment may encourage the RBNZ to retain a very hawkish tone for monetary policy, and the NZD/USD may recoup the losses from earlier this month should Governor Graeme Wheeler show a greater willingness to deliver another rate hike later this year.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (2Q)

1.8%

1.6%

Gross Domestic Product s.a. (QoQ) (1Q)

1.1%

1.0%

Retail Sales ex Inflation (QoQ) (1Q)

0.9%

0.7%

Nevertheless, the RBNZ may strike a more balanced tone for the region amid the slowdown in private sector consumption along with the limited pickup in price growth, and the New Zealand dollar may continue to press fresh monthly lows should the fresh batch of central bank rhetoric drag on interest rate expectations.

Read More:

NZDCAD Testing Range Support Ahead of RBNZ- 9285 Key

AUD/NZD continues higher from key cycle turn window

How To Trade This Event Risk(Video)

Bullish NZD Trade: RBNZ Hikes to 3.50% & Retains Hawkish Forward-Guidance

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

Bearish NZD Trade: Governor Wheeler Adopts Neutral Tone & Talks Down Rate Expectations

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

Potential Price Targets For The Release

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Will look for fresh highs should the NZD/USD carve a higher-low in July
  • Interim Resistance: 0.8841 (2011 High) to 0.8850 (61.8% expansion)
  • Interim Support: 0.8600 (23.6% retracement) to 0.8620 (50.0% retracement)

Impact that the RBNZ 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)

JUN 2014

06/11/2014 21:00 GMT

3.25%

3.25%

+75

+153

June 2014 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision

NZD/USD Chart

The headline reading for New Zealand inflation unexpectedly slowed during the first three-months of 2014, with the CPI figure slipping to an annualized 1.5% from 1.6% in the fourth quarter. The New Zealand dollar struggled to hold its ground following the dismal print, with the NZD/USD moving back below the 0.8600 handle, but the higher-yielding currency pared the losses during the North American trade to close at 0.8622.

--- 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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