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NZD/USD at Risk for Further Losses on Wait-and-See RBNZ

NZD/USD at Risk for Further Losses on Wait-and-See RBNZ

2017-06-21 15:30:00
David Song, Currency Strategist
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- Reserve Bank of New Zealand (RBNZ) to Hold Official Cash Rate at Record-Low of 1.75%.

- Will Governor Graeme Wheeler Continue to Endorse a Wait-and-See Approach?

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

RBNZ Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) interest rate decision may weigh on NZD/USD as the central bank is widely anticipated to keep the official cash rate at the record-low of 1.75%, and the New Zealand dollar stands at risk of giving back the advance from the previous month should Governor Graeme Wheeler and Co. show a greater willingness to preserve the highly accommodative stance throughout the second-half of 2017.

Why Is This Event Important:

Even though Governor Wheeler is scheduled to depart from the central bank in September, the RBNZ appears to be in no rush to deviate from its wait-and-see approach as officials pledge ‘monetary policy will remain accommodative for a considerable period.’ In turn, the central bank may keep the door open to further support the real economy as ‘numerous uncertainties remain,’ and more of the same from the RBNZ may generate a bearish reaction in NZD/USD as it drags on interest-rate expectations.

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY

2017

05/10/2017 21:00 GMT

1.75%

1.75%

-77

-77

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

NZD/USD 5-Minute

NZD/USD Chart

The Reserve Bank of New Zealand (RBNZ) kept the official cash rate at the record-low in May, with Governor Graeme Wheeler and Co. largely endorse a wait-and-see approach as ‘numerous uncertainties remain and policy may need to adjust accordingly.’ Moreover, Assist Governor John McDermott noted that ‘there is an even chance of a hike or a cut in the future’ amid the downside risks surrounding the economy, and the RBNZ may continue tame interest-rate expectations throughout 2017 as the central bank reiterates ‘monetary policy will remain accommodative for a considerable period.’ The New Zealand dollar sold off following the dovish statement, with NZD/USD slipping below the 0.6900 handle to end the day at 0.6849.

How To Trade This Event Risk(Video)

Bearish NZD Trade: RBNZ Retains Cautious Outlook, Endorses Wait-and-See Approach

  • Need a green, five-minute candle following the rate decision to consider a long NZD/USD trade.
  • If market reaction favors a bullish kiwi position, buy NZD/USD with two separate lots.
  • Set stop at the near-by swing low/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 and Co. Drops Dovish Tone

  • Need a red, five-minute candle to consider a short NZD/USD trade.
  • 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 Trading View

  • Lack of momentum to test the 2017-high (0.7376) may keep NZD/USD capped over the days ahead, with the broader outlook still tilted to the downside as the pair largely preserves the bearish trend carried over from 2016; the Relative Strength Index (RSI) highlights a similar dynamic as it falls back from overbought territory, and the oscillator may flash a near-term signal as it comes up against trendline support.
  • In turn, a break/close below the 0.7200 (38.2% retracement) handle may spur a move back towards 0.7160 (61.8% retracement), with the next area of interest coming in around 0.7100 (50% retracement).
  • Interim Resistance: 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion)
  • Interim Support: 0.6820 (23.6% retracement) to 0.6850 (38.2% retracement)

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IG Sentiment

Retail trader data shows 15.0% of traders are net-long NZD/USD with the ratio of traders short to long at 5.68 to 1. In fact, traders have remained net-short since May 24 when NZD/USD traded near 0.69347; price has moved 4.2% higher since then. The number of traders net-long is 11.2% lower than yesterday and 27.5% lower from last week, while the number of traders net-short is 3.6% higher than yesterday and 38.1% higher from last week. For more information on retail sentiment, check out the new gauge developed by DailyFX based on trader positioning.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

--- Written by David Song, Currency Analyst

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

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