Strategy Video: Market Heavily Biased Heading Into RBNZ Rate Decision
• According to swaps, the market is certain that the RBNZ will cut its benchmark lending rate another 25 bps
• Setting expectations so high, a simple rate cut may not be enough to extend further Kiwi declines
• Given how depressed the NZD has become these past weeks, there will be a strong influence for correction
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The RBNZ rate decision is likely to generate more volatility and trend in the aftermath of its policy decision than the Fed or ECB leveraged. The difference is the potential for surprise and the intensity of conviction heading into the event. Looking at overnight swaps, we find that the market is certain of a 25 basis point cut to 3.00 percent. What's more, speculation is so intense that the market is starting to weigh in on the possibility of a 50 bp move or at least rhetoric that opens the door for a follow up cut the meeting that follows. These intense forecasts set a strong expectation - one that can be easily disappointed. Whether the RBNZ can live up to these forecasts or falls short, there are certain pairs that are better positioned for taking advantage of the outcome. We discuss these scenarios and pairs in today's Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.