Why Did the Kiwi Rally after the RBNZ Cut and When is it Clear to Trade?
• The New Zealand Dollar rallied after the RBNZ announced a 25 bp rate cut to 3.00 percent
• While it may seem a fundamental contradiction, the Kiwi bounce reflects how aggressive expectations were
• Though the dovish tone was less extreme, it was still dovish; what additional cues to establish when/if to enter
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Those that were not preparing for the RBNZ rate decision ahead of time were left scratching their heads when the New Zealand Dollar rallied after the bank cut rates. Typically, when a policy group eases (cuts rates, adds stimulus) the reaction from the currency is bearish. However, anticipation can move the goal posts on what is 'worse' or 'better' than expected. That was the case with the RBNZ's decision to cut the benchmark rate a second time to 3.00 percent. While it was certainly a dovish move, it wasn't particularly bearish because the market had discounted such an outcome by driving the Kiwi down ahead of the event. To 'meet' the market's forecast, we would needed a cut and clear support for further aggressive easing moving forward. So, with this awkward outcome - dovish but not dovish enough - how do we establish how and when to place a trade? Choosing the correct pair, looking for commitment and following clear technical levels is critical. We discuss this and more 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.