NZD/USD Risks Further Losses on Bets for Imminent RBNZ Rate-Cut
- Reserve Bank of New Zealand (RBNZ) to Hold Official Cash Rate at 2.25%.
- Will Governor Graeme Wheeler Keep the Door Open for Lower Borrowing-Costs?
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Trading the News: Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
Even though the Reserve Bank of New Zealand (RBNZ) is anticipated to keep the benchmark interest rate on hold at 2.25%, fresh comments from Governor Graeme Wheeler may derail the NZD/USD advance from earlier this year should the central bank head show a greater willingness to implement lower borrowing-costs.
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Why Is This Event Important:At the same time, the RBNZ may toughen the verbal intervention on the local currency as the central bank prefers a weaker exchange rate, and the New Zealand dollar may struggle to hold its ground should the central bank highlight a more dovish tilt for monetary policy.
Expectations: Bearish Argument/Scenario
|Trade Balance (MAR)||401M||117M|
|Business NZ Purchasing Manager Index- Manufacturing (MAR)||--||54.7|
|ANZ Business Confidence (MAR)||--||3.2|
Waning confidence paired with the slowdown in business outputs may encourage the RBNZ to further embark on its easing cycle in 2016, and market participants may boost bets for another interest-rate cut should the central bank sound increasingly cautious this time around.
Risk: Bullish Argument/Scenario
|Consumer Price Index (YoY) (1Q)||0.4%||0.4%|
|REINZ House Sales (YoY) (MAR)||--||8.2%|
|Gross Domestic Product (YoY) (4Q)||2.1%||2.3%|
However, signs of a more robust recovery accompanied by the pickup in price growth may prompt Governor Wheeler to adopt a more balanced outlook for monetary policy, and a less-dovish policy statement may spur a bullish reaction in the New Zealand dollar as market participants scale back bets for lower borrowing-costs.
How To Trade This Event Risk(Video)
Bearish NZD Trade: Governor Wheeler Pledges to Ease Policy Further
- Need red, five-minute candle following the rate decision to consider a short NZD/USD position.
- 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 cost; at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is met, set reasonable limit.
Bullish NZD Trade: RBNZ Adopts More Balanced Tone
- Need green, five-minute candle to favor a long NZD/USD trade.
- Implement same strategy as the bearish New Zealand dollar trade, just in reverse.
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- The 2016 advance in NZD/USD may continue to unravel should there be a greater divergence in the policy outlook, while the Relative Strength Index (RSI) struggles to preserve the bullish momentum carried over from earlier this year.
- Interim Resistance: 0.7050 (78.6% retracement) to 0.7070 (23.6% expansion)
- Interim Support: 0.6570 (100% expansion) to 0.6590 (38.2% retracement)
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Impact that the RBNZ rate decision has had on NZD/USD during the last meeting
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|03/09/2016 19:00 GMT||2.50%||2.25%||-136||-120|
March 2016 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
The Reserve Bank of New Zealand (RBNZ) unexpectedly cut the official cash rate by 25bp in March to 2.25%, with the central bank toughen the verbal intervention on the local currency as ‘the trade-weighted exchange rate is more than 4 percent higher than projected in December.’ As a result, the RBNZ argued that ‘a decline would be appropriate given the weakness in export prices,’ with Governor Graeme Wheeler leaving the door open to implement lower borrowing-costs in order to ‘ensure that future average inflation settles near the middle of the target range.’ The surprise rate-cut dragged on the exchange rate, with NZD/USD slipping below the 0.6700 handle to end the day at 0.6664.
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--- Written by David Song, Currency Analyst
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