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Bearish NZD/USD Trend in Focus- Will RBNZ Remove Verbal Intervention?

Bearish NZD/USD Trend in Focus- Will RBNZ Remove Verbal Intervention?

2014-09-10 13:30:00
David Song, Currency Strategist
Share:

- RBNZ Expected to Retain Current Policy Amid Period of ‘Interest Rate Stability’.

- Will RBNZ Governor Graeme Wheeler Remove the Verbal Intervention on Kiwi?

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

According to a Bloomberg News survey, all of the 13 economist polled see the Reserve Bank of New Zealand (RBNZ) keeping the interest rate on hold at 3.50%, but the fresh batch of central bank rhetoric may produce increased volatility in the NZD/USD as market participants weigh the outlook for monetary policy.

What’s Expected:

NZD/USD RBNZ

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Why Is This Event Important:

In light of the marked depreciation in the NZD/USD, the biggest risk for surprise will be a removal of the verbal intervention on the kiwi, and a further decline in the exchange rate may prompt Governor Graeme Wheeler to adopt a more hawkish tone for monetary policy as it fuels imported inflation.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Manufacturing Activity s.a. (QoQ) (2Q)

--

-1.9%

Employment Change (QoQ) (2Q)

0.7%

0.4%

Consumer Price Index (YoY) (2Q)

1.8%

1.6%

Below-target inflation along with the slowdown in employment may encourage the RBNZ to retain a period of ‘interest rate stability’ in New Zealand, and the fresh batch of central bank rhetoric may spur a further decline in the NZD/USD should it drag on interest rate expectations.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Value of All Buildings (YoY) (2Q)

0.0%

1.0%

Retail Sales ex Inflation (QoQ) (2Q)

1.0%

1.2%

Private Wages ex Overtime (QoQ) (2Q)

0.5%

0.6%

Nevertheless, the RBNZ may no longer jawbone the kiwi as the lower exchange rate raises the risk for imported inflation, and the NZD/USD may face a more meaningful rebound ahead of the next Fed meeting on September 17 should Governor Wheeler unexpectedly adopt a more hawkish tone for monetary policy.

How To Trade This Event Risk(Video)

Bearish NZD Trade: RBNZ Continues Talk Down Interest Rate Expectations

  • Need red, five-minute candle following the statement to consider a short New Zealand dollar trade
  • If market reaction favors selling kiwi, short NZD/USD with two separate position
  • Set stop at the near-by swing high/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

Bullish NZD Trade: Governor Wheeler Removes Verbal Intervention

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

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Potential Price Targets For The Release

NZD/USD Daily

NZD/USD Daily

Chart - Created Using FXCM Marketscope 2.0

  • Need price & RSI to break out of bearish trend to favor larger correction
  • Interim Resistance: 0.8430 (23.6% retracement) to 0.8450 (23.6% expansion)
  • Interim Support: 0.8160 (100% expansion) to 0.8180 (38.2% retracement)

Read More:

Price & Time: USD/JPY Where To Next?

GBPJPY Pitchfork Setup- Scalps Target Sunday Gap

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)

JUL 2014

07/23/2014 21:00 GMT

3.50%

3.50%

-79

-114

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

NZD/USD Chart

As expected, the Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) by another 25 pips to 3.50%, marking the fourth consecutive interest rate hike since March 2014. However, the RBNZ revised down the GDP forecast to 3.7% from 4% in June amid falling export prices of diary and timber, and went onto say that there will ‘be a period of assessment before interest rates adjust further towards a more-neutral level’. The NZD/USD was pulled down nearly 90 pips following the shift in the policy outlook, with the pair ending the day at 0.8584.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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