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NZDUSD and Kiwi Cross Scenarios on RBNZ Rate Decision

NZDUSD and Kiwi Cross Scenarios on RBNZ Rate Decision

2014-09-09 20:25:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

• The RBNZ has raised its benchmark lending rate four consecutive meetings to 3.50 percent through July

• Since the last increase the Kiwi has dropped sharply after it was suggested today's meeting could pause

• Expectations are heavily skewed and a heavy market response from the NZD is likely

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Despite an appetite (healthy or not) for carry and four consecutive rate hikes under its belt, the New Zealand dollar has been in retreat over the past 6 weeks. That is the power that speculation holds over the markets. Having over-stretched their view of rate increases when RBNZ Governor Wheeler initially announced his intentions to increase the benchmark rate 225 basis points over nine quarters, a correction on a paced policy move was likely. However, in the correction, the market may have once again overshot its fundamental equilibrium. In today's Strategy Video, we discuss the RBNZ rate decision and what impact it could have on the Kiwi crosses under different scenarios.

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