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NZD/USD Threatens Topside Hurdle Ahead of RBNZ Meeting

NZD/USD Threatens Topside Hurdle Ahead of RBNZ Meeting

2017-03-22 18:40:00
David Song, Currency Strategist
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- Reserve Bank of New Zealand (RBNZ) to Keep Official Cash Rate at 1.75%.

- Will Governor Wheeler Retain the Status Quo Ahead of His Departure?

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

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

The Reserve Bank of New Zealand (RBNZ) is widely expected to keep the official cash rate at the record-low of 1.75%, but the fresh remarks from Governor Graeme Wheeler and Co. may dampen the appeal of the local currency should the central bank keep the door open to further support the real economy.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:It seems as though the RBNZ will stick with the status quo as Governor Wheeler is scheduled to leave the helm in September, but the central bank appears to be in no rush to move away from its easing-cycle as ‘numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.’ In turn, the New Zealand dollar may come under pressure should the RBNZ adopt a more dovish outlook for monetary policy, but more of the same rhetoric may fuel the near-term recovery in NZD/USD as Fed officials continue to forecast a terminal fed funds rate close to 3.00%.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

ANZ Consumer Confidence (MoM) (MAR)

--

-1.7%

Gross Domestic Product (YoY) (4Q)

3.2%

2.7%

Retail Sales ex Inflation (QoQ) (4Q)

1.0%

0.6%

Waning confidence accompanied by the slowdown in private-sector consumption may push the RBNZ to sound more cautions this time around, and the New Zealand dollar stands at risk of facing near-term headwinds should the central bank show a greater willingness to further reduce the official cash rate.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Activity s.a. (QoQ) (4Q)

--

0.8%

Building Permits (MoM) (JAN)

--

0.8%

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

1.5%

1.9%

Nevertheless, the pickup in business outputs paired with signs of a stabilizing housing market may encourage Governor Wheeler and Co. to highlight an improved outlook for the region, and the kiwi-dollar may extend the advance from earlier this month should the RBNZ tame expectations for additional monetary support.

How To Trade This Event Risk(Video)

Bearish NZD Trade: RBNZ Keeps Door Open For Another Rate-Cut

  • Need a 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: Governor Wheeler Drops Dovish Tone

  • Need a green, five-minute candle to favor a long NZD/USD trade.
  • Implement same strategy as the bearish 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

Chart - Created Using Trading View

  • Even though the broader outlook for NZD/USD remains tilted to the downside, the failed run at the December low (0.6862) may foster a larger recovery especially as the Relative Strength Index (RSI) clears the bearish formation carried over from the previous month; a close above the near-term hurdle around 0.7040 (50% retracement) to 0.7060 (38.2% retracement) opens up the next topside target around 0.7100 (38.2% expansion) to 0.7120 (50% retracement).
  • Interim Resistance: 0.7520 (50% retracement) to 0.7530 (78.6% retracement)
  • Interim Support: 0.6885 (2017 low) to 0.6950 (38.2% retracement)

Impact that the RBNZ rate decision has had on NZD/USD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

FEB

2017

02/08/2017 20:00 GMT

1.75%

1.75%

-14

-103

February 2017 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision

NZD/USD 5-Minute

NZD/USD Chart

Chart - Created Using Trading View

The Reserve Bank of New Zealand (RBNZ) kept the official cash rate at the record-low of 1.75% at its first policy meeting for 2017, and it seems as though the central bank is in no rush to move away from its easing-cycle as Governor Graeme Wheeler and Co. note ‘monetary policy will remain accommodative for a considerable period.’ Moreover, the RBNZ struck a similar tone to its major counterparts and argued ‘global headline inflation has increased, partly due to rising commodity prices,’ and the central bank may keep the door open to further support the real economy as ‘numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.’ The New Zealand struggled to hold its ground following the policy meeting, with NZD/USD slipping below the 0.7250 region to end the day at 0.7187.

Read More:

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DAX – Rising Wedge Reaches Maturity, Waiting for the Break

Positioning Shift And Sentiment May Pressure Oil As Supply Swells

--- Written by David Song, Currency Analyst

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

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