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Dovish RBNZ to Keep NZD/USD Capped- March Range in Focus

Dovish RBNZ to Keep NZD/USD Capped- March Range in Focus

2016-03-09 17:15:00
David Song, Shuyang Ren,

- Reserve Bank of New Zealand to Keep Cash Rate at Record-Low of 2.50%.

- Will Governor Graeme Wheeler Look to Further Embark on Easing Cycle?

For more updates, sign up for David's e-mail distribution list.

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

According to a Bloomberg News survey, 15 of the 17 economists polled forecasts the Reserve Bank of New Zealand (RBNZ) to keep the cash rate on hold at 2.50%, but the fresh batch of central bank rhetoric may produce near-term headwinds for the New Zealand dollar should Governor Graeme Wheeler show a greater willingness to implement lower borrowing-costs.

What’s Expected:

NZD/USD RBNZ

Click Here for the DailyFX Calendar

Why Is This Event Important:

The RBNZ may keep the door open to further reduce the cash rate in an effort to mitigate the downside risks surrounding the region, and NZD/USD may struggle to retain its recent advance should Governor Wheeler and Co. sound more dovish this time around.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales ex Inflation (QoQ) (4Q)

1.5%

1.2%

Inflation Expectation (1Q)

--

1.63%

Private Wages ex Overtime (QoQ) (4Q)

0.5%

0.4%

Easing wage growth paired with the slowdown in private-sector consumption may encourage the RBNZ to further support the real economy, and the accompanying policy statement may dampen the appeal of the New Zealand dollar as market participants boost bets for a rate-cut in 2016.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Value of All Buildings s.a. (QoQ) (4Q)

2.0%

2.5%

Credit Card Spending (MoM) (JAN)

--

2.3%

REINZ House Sales (YoY) (JAN)

--

4.3%

Nevertheless, the RBNZ may largely endorse a wait-and-see approach as the previous rate-cuts continue to work their way through the economy, and more of the same from the central bank may fuel a larger recover in NZD/USD as the cash rate sits at the record-low.

How To Trade This Event Risk(Video)

Bearish NZD Trade: RBNZ Shows Greater Willingness for Lower Rates

  • Need red, five-minute candle following the rate decision for a potential short NZD/USD trade.
  • If market reaction favors a bearish kiwi trade, sell 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 breakeven on remaining position once initial target is met, set reasonable limit.

Bullish NZD Trade: Governor Wheeler Suggests End of Easing Cycle is Near

  • Need green, five-minute candle to consider a long NZD/USD position.
  • Carry out the same setup as the bearish kiwi trade, just in reverse.

Potential Price Targets For The Release

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • More of the same from the RBNZ may foster range-bound prices for NZD/US, but the pair may make a run at the October (0.6896) as well as the December high (0.6882) should Governor Wheeler adopt a more neutral outlook for monetary policy.
  • Interim Resistance: 0.6890 (50% expansion) to 0.6900 (100% expansion)
  • Interim Support: 0.6400 (61.8% retracement) to 0.6440 (23.6% retracement)

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

NZD/USD SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short NZD/USD since February 29, with the ratio hitting a near-term extreme in March as it slipped to the -1.75 region.
  • The ratio has narrowed ahead of the RBNZ meeting as it currently sits at -1.49, with 40% of traders now long.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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)

JAN 2016

01/27/2016 20:00 GMT

2.50%

2.50%

-37

-20

January 2016 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision

NZD/USD Chart

The Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) unchanged at 2.50% in January, but Governor Graeme Wheeler continued to highlight a dovish outlook for monetary policy as the central bank warned further easing could be necessary over the coming months. Moreover, the RBNZ argued that a further depreciation in the local currency would be appropriate as the central bank pushes out its forecast of achieving the 1% to 3% target for inflation. The New Zealand dollar lost ground following the dovish tone from the RBNZ, with NZD/USD dipping below the 0.6475 region to end the session at 0.6456.

Read More:

S&P 500 - Caught Between the Lines

COT-Largest Net Long Position for JPY Specs Since January 2012

US DOLLAR Technical Analysis: Dollar Facing 2016 Lows As Data Picks Up

Another Big Test Awaits USD/CAD

Get our top trading opportunities of 2016 HERE

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

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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