NZD/USD, AUD/NZD – NEW ZEALAND DOLLAR HINGES ON RBNZ RATE DECISION DUE
- New Zealand Dollar price action looks likely to accelerate as the RBNZ decision looms
- NZD/USD and AUD/NZD overnight implied volatility readings spike to multi-month highs
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The New Zealand Dollar strengthened broadly on Tuesday as FX traders positioned themselves for the upcoming RBNZ interest rate announcement. Market expectations are for a less-dovish shift in policy by the Reserve Bank of New Zealand, which might see another wave of buying pressure for NZD price action if confirmed. Though RBNZ officials are widely anticipated to leave its benchmark overnight cash rate unchanged at 0.25%, the central bank is likely to upgrade economic forecasts and could even bring forward its timeline for raising rates.
Markets are currently pricing in an 11% probability that the RBNZ hikes rates before year-end. Quite unlikely as things stand, but this could tick higher if there is further tapering of the Large Scale Asset Purchase (LSAP) program and Funding for Lending Program (FLP) operation. If the RBNZ disappoints hawks with cautious guidance, however, the New Zealand Dollar wound stand to snap lower as the market unwinds bullish bets. High-impact event risk posed by the RBNZ rate decision due Wednesday, 26 May at 02:00 GMT has caused has caused NZD/USD and AUD/NZD overnight implied volatility readings to skyrocket. In fact, expected New Zealand Dollar price action ranks in the top 90th percentile of readings taken over the last 12-months.
NZD/USD PRICE CHART: DAILY TIME FRAME (21 DEC 2020 TO 25 MAY 2021)
NZD/USD overnight implied volatility of 13.7% suggests price action will fluctuate within a 104-pip trading range between 0.7180-0.7284 with a 68% statistical probability.
AUD/NZD PRICE CHART: DAILY TIME FRAME (21 DEC 2020 TO 25 MAY 2021)
AUD/NZD overnight implied volatility of 8.6% suggests price action will fluctuate within a 96-pip trading range between 1.0671-1.0767 with a 68% statistical probability.
