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NZD/USD Outlook Mired by Bearish Sequence, RBNZ Verbal Intervention

NZD/USD Outlook Mired by Bearish Sequence, RBNZ Verbal Intervention

2017-09-27 14:30:00
David Song, Strategist
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- Reserve Bank of New Zealand (RBNZ) to Hold Official Cash Rate at Record-Low of 1.75%.

- Will Governor Spencer Jawbone the New Zealand Dollar?

- Sign Up & Join DailyFX Chief Strategist John Kicklighter LIVE to Cover the RBNZ Rate Decision.

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

RBNZ Rate Decision

Even though the Reserve Bank of New Zealand (RBNZ) is widely anticipated to retain the record-low cash rate in September, the central bank may ultimately toughen the verbal intervention on the local currency as officials argue that ‘a lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth.

With New Zealand now facing a hung parliament, the RBNZ under Governor Grant Spencermay sound more cautious especially as the recent data prints coming out of the region cast a weakened outlook for growth and inflation. As result, the RBNZ may step up its efforts to jawbone the local currency as the central bank warns the New Zealand dollar Trade-Weighted Index (TWI) has ‘appreciated around 5 percent since May and is currently around 3 percent higher than forecast in the May Statement.

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)

AUG

2017

08/10/2017 21:00:00 GMT

1.75%

1.75%

+17

-59

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

NZD/USD 10-Minute

NZD/USD Chart

The Reserve Bank of New Zealand (RBNZ) held the official cash rate at the record-low of 1.75%, with the central bank largely endorsing a wait-and-see approach at Governor Graeme Wheeler’s last meeting as ‘numerous uncertainties remain and policy may need to adjust accordingly.’ The fresh remarks suggest the RBNZ remains in no rush to raise the benchmark interest rate as ‘GDP in the March quarter was lower than expected, adding to the softening in growth observed at the end of 2016,’ and the central bank may preserve the current policy throughout 2017 as ‘headline inflation is likely to decline in coming quarters as the effects of higher fuel and food prices dissipate. NZD/USD initially nudged higher as the RBNZ stuck to the sidelines, but the market reaction was short-lived, with the pair slipping below the 0.7300 handle to end the day at 0.7277.

How To Trade This Event Risk(Video)

Bearish NZD Trade: Governor Spencer & Co. Endorse Record-Low Rate, Jawbone Local Currency

  • Need a red five-minute candle following the rate decision to consider a short NZD/USD trade.
  • If market reaction favors a bearish kiwi position, sell NZD/USD with two separate lots.
  • 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: RBNZ Adopts Hawkish Outlook for Monetary Policy

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

Key Levels For NZD/USD

NZD/USD Daily Chart

NZD/USD Daily Chart

DailyFX 3Q Forecasts Are Now Available

  • Near-term outlook for NZD/USD remains capped by the 0.7470 (50% expansion) hurdle, with the pair at risk for a larger pullback as it extends the series of lower highs & lows from the previous week.
  • Close below the Fibonacci overlap around 0.7190 (50% retracement) to 0.7200 (38.2% retracement) may open up the 200-Day SMA (0.7146), which sits just above the monthly-low (0.7144), with the next region of interest coming in around 0.7100 (38.2% retracement) to 0.7110 (38.2% expansion).
  • Keep in mind, NZD/USD has negated the risk for a head-and-shoulders reversal after pushing to a fresh monthly-high (0.7433), and the pair may largely consolidate going into the first full-week of October amid quarter/month-end flows.
  • Interim Resistance: 0.7730 (100% expansion) to 0.7744 (April 2015-high)
  • Interim Support: 0.7040 (50% retracement) to 0.7053 (April 2017-high)

NZD/USD Retail Sentiment

NZD/USD Retail Sentiment

See how shifts in NZD/USD retail positioning are impacting trend- Click here to learn more about sentiment!

Retail trader data shows 48.1% of traders are net-long with the ratio of traders short to long at 1.08 to 1. The number of traders net-long is 16.2% higher than yesterday and 3.3% lower from last week, while the number of traders net-short is 7.6% lower than yesterday and 13.3% higher from last week.

--- Written by David Song, Currency Analyst

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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