NZD/USD to Eye April High (0.7053) on Less-Dovish RBNZ
08 Jun 2016 17:00, GMT- Reserve Bank of New Zealand (RBNZ) to Hold Official Cash Rate at 2.25%.
- Will Governor Graeme Wheeler Continue to Endorse a Wait-and-See Approach?
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Trading the News: Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
According to a Bloomberg News survey, 10 of the 17 economists polled anticipate the Reserve Bank of New Zealand (RBNZ) to retain its current policy in June, but more of the same from Governor Graeme Wheeler and Co. may encourage a further recovery in NZD/USD should the central bank largely endorse a wait-and-see approach for monetary policy.
What’s Expected:
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Why Is This Event Important:Even though the RBNZ keeps the door open to further support the real economy, a less-dovish policy statement may boost the appeal of the New Zealand dollar as market participants scale back speculation for lower borrowing-costs.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Value of All Buildings s.a. (QoQ) (1Q) | 1.0% | 5.3% |
| Trade Balance (APR) | 25M | 292M |
| Employment Change (QoQ) (1Q) | 0.6% | 1.2% |
The improvement in the terms of trade accompanied by the ongoing improvement in the labor market may encourage Governor Wheeler to adopt an improved outlook for the region, and the fresh batch of central bank rhetoric may spark a bullish reaction in the New Zealand dollar should the RBNZ talk down expectations for an imminent rate-cut.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| ANZ Consumer Confidence (MoM) (MAY) | -- | -3.2% |
| Retail Sales ex Inflation (QoQ) (1Q) | 1.0% | 0.8% |
| Average Hourly Earnings (QoQ) (1Q) | 0.5% | 0.3% |
However, subdued wage growth paired with the slowdown in household consumption may dampen the outlook for growth and inflation, and the kiwi stands at risk of facing near-term headwinds should the RBNZ show a greater willingness to further embark on its easing cycle.
How To TradeThis Event Risk(Video)
Bullish NZD Trade: Governor Wheeler Pledges to Ease Policy Further
- Need green, five-minute candle following the rate decision to consider a long NZD/USD position.
- If market reaction favors a bullish kiwi trade, buy NZD/USD with two separate position.
- Set stop at the near-by swing low/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.
Bearish NZD Trade: RBNZ Adopts More Balanced Tone
- Need red, five-minute candle to favor a short NZD/USD trade.
- Implement same strategy as the bullish New Zealand dollar trade, just in reverse.
Potential Price Targets For The Release
NZD/USD Daily
- NZD/USD appears to have carved a higher-low at the end of May as the Relative Strength Index (RSI) breaks out of the bearish formation from April, with the pair at risk of making another run at the April high (0.7053) should the RBNZ soften its dovish outlook for monetary policy.
- 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 |
|---|---|---|---|---|---|
APR 2016 | 04/27/2016 21:00 GMT | 2.25% | 2.25% | +95 | +134 |
April 2016 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
NZD/USD 5-Minute
As expected, the Reserve Bank of New Zealand (RBNZ) retain its current policy in April, with the central bank keeping the benchmark interest rate at 2.25%, but kept the door open to further support the real economy as Governor Graeme Wheeler and Co. argued ‘further policy easing may be required to ensure that future average inflation settles near the middle of the target range.’ Moreover, the RBNZ warned ‘the outlook for global growth has deteriorated over recent months due to weaker growth in China and other emerging markets,’ and the central bank may further embark on its easing cycle over the coming months in an effort to insulate the region from the slowdown in the world economy. Nevertheless, NZD/USD climbed above the 0.6900 handle following the rate-decision, with the New Zealand dollar gaining ground throughout the day as the pair closed at 0.6956.
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.