We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Mixed
Gold
Bearish
Oil - US Crude
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Bitcoin
Bearish
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • JPY BOJ Kuroda: Will closely examine prices, economy at next meeting
  • CHF Switzerland Aug Exports MM Actual: -4.4% Previous: -1.2% Imports MM Actual: 1.0% Previous: -0.5% Swiss Watch Exports YY Actual: 1.5% Previous: 4.7%
  • European Opening Calls: From IG #FTSE 7299 -0.20% #DAX 12384 -0.04% #CAC 5621 +0.01% #IBEX 9046 +0.16% #STOXX 3529 +0.03%
  • Follow @DailyFXedu for your regular #webinar updates with @DailyFX analysts and catch up on the webinars you missed. https://t.co/72SjAaa27X
  • My trading video for today: $Dollar and S&P 500 Strategy for the #FOMC Rate Decision' https://www.dailyfx.com/forex/video/daily_news_report/2019/09/19/Dollar-and-SP-500-Steady-After-Fed-Cut-Monetary-Policy-Remains-Top-Concern.html?utm_source=Twitter&utm_medium=Kicklighter&utm_campaign=twr
  • How can you avoid #FOMOintrading with easy seven steps to creating a trading plan? Find out from @RichardSnowFX here: https://t.co/y2UvtIRZAG https://t.co/mBzJBviQDO
  • 🇯🇵 (JPY) All Industry Activity Index (MoM) (JUL), Actual: 0.2% Expected: 0.2% Previous: -0.7% https://www.dailyfx.com/calendar?utm_source=Twitter&utm_medium=TweetRobot&utm_campaign=twr
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.35%, while traders in France 40 are at opposite extremes with 83.89%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/SXDGRBOC4e
  • Heads Up:🇯🇵 JPY All Industry Activity Index (MoM) (JUL) due at 04:30 GMT (15min), Actual: N/A Expected: 0.2% Previous: -0.8% https://www.dailyfx.com/economic-calendar#2019-09-19
  • Forex Update: As of 04:00, these are your best and worst performers based on the London trading schedule: 🇯🇵JPY: 0.53% 🇨🇭CHF: 0.10% 🇪🇺EUR: 0.06% 🇬🇧GBP: -0.04% 🇳🇿NZD: -0.08% 🇦🇺AUD: -0.56% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/FYKlVlhoR3
New Zealand Dollar: Lots of Room to Disappoint in RBNZ

New Zealand Dollar: Lots of Room to Disappoint in RBNZ

2014-04-19 02:39:00
John Kicklighter, Chief Currency Strategist
Share:
New Zealand Dollar: Lots of Room to Disappoint in RBNZ

Fundamental Forecast for the New Zealand Dollar: Neutral

  • The RBNZ rate decision will be a key event for the New Zealand dollar this week
  • With the market pricing in a near 100 probability of a follow up hike, can the central bank still impress?
  • See what automated systems are signaling trades for NZDUSD in the DailyFX-Plus signals

The market seems pretty certain that the New Zealand central bank will usher in the strongest wave of monetary policy – and thereby carry increase – of the majors. Yet, if the outlook is so certain and hawkish; why is the performance for the New Zealand dollar not more bullish? The Kiwi reminds us that markets move to price in fundamental considerations as soon as they are deemed probable enough to be acted on; and fundamental impact – as with currency performance – is relative.

On Wednesday at 21:00 GMT, the Reserve Bank of New Zealand (RBNZ) is set to deliberate on the country’s monetary policy. According to the 15 economists polled by Bloomberg, the meeting will end with a 25 basis point (bp) hike to 3.00 percent. The market is equally as convinced that the policy authority will raise rates at back-to-back meetings. Overnight swaps are pricing in a 97 percent probability of another quarter-percent hike.

That certainty inadvertently diminishes the potential for bullish market response to this event while simultaneously leverages the potential and impact of a ‘disappointment’. If the market is certain of an impending hike, carry traders and speculative frontrunners should theoretically already positioned for such an outcome. As such, realizing the move would generated limited reaction for a stronger bullish swell as there would be few that haven’t already accounted for it. Consider, since the March 12 rate hike – the first – the New Zealand dollar has maxed out its bullish move with a 2 percent climb versus the euro. Its performance versus others is materially weaker – and even negative versus the Australian dollar.

And, what happens if the RBNZ decides not to move forward so aggressively with its policy course? If the bulk of the market is positioned for a hike, its absence could lead to a material unwinding of long exposure to account for a more moderate course of tightening. In other words, the market is already pricing perfection; and now RBNZ Governor Wheeler needs to keep pace.

In probability terms, a rate hike is the more likely outcome; but there will still be speculation surrounding subsequent moves. According to Wheeler’s own forecasts, he expected another 200 bps of tightening through the first quarter of 2016. That would mean that there are inevitably gaps between hikes. If that first wait-and-see moment is for the next meeting in June, the kiwi could fall back. The market will look to assess this in the central banker’s usually blunt commentary.

Another factor to keep in mind with this high profile event is that risk appetite dictates the influence that monetary policy changes have. In other words, if there is a market-wide ‘risk aversion’ drive; a 25bp increase in New Zealand’s still-historically low yield will likely do to quell the capital flight. And given the market’s pricing in perfection for the kiwi and New Zealand monetary policy, the risk is again amplified should risk aversion touch off. - JK

provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.