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Forex pairs in this Article » NZD/USD
- Reserve Bank of New Zealand to Retain Current Policy; Warn of Rate Hikes in 2014

- Will RBNZ Governor Stephen Poloz Lay Out More Detailed Exit Strategy?

Trading the News: Reserve Bank of New Zealand Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) is widely expected to keep the benchmark interest rate at 2.50%, but the policy statement may highlight a bullish outlook for the NZDUSD as the central bank is widely expected to normalize monetary policy this year.

What’s Expected:

Time of release: 01/29/2014 20:00 GMT, 15:00 EST

Primary Pair Impact: NZDUSD

Expected: 2.50%

Previous: 2.50%

DailyFX Forecast: 2.50%

Why Is This Event Important:

Indeed, RBNZ Governor Graeme Wheeler may unveil a more detailed exit strategy this time around amid the growing threat of an asset-bubble, and bets for an imminent rate hike may spur fresh highs in the New Zealand dollar as market participants weigh the prospects for future policy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (4Q)

1.5%

1.6%

Gross Domestic Product s.a. (QoQ) (3Q)

1.1%

1.4%

Employment Change (QoQ) (3Q)

0.5%

1.2%

The RBNZ may adopt a more hawkish tone for monetary policy as the pickup in growth and inflation raises the threat of a housing-bubble, and the fresh batch of central bank rhetoric may prop up the NZD should Governor Wheeler show a greater willingness to raise rates sooner rather than later.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

BoP Current Account Balance (3Q)

-4.600B

-4.780B

Retail Sales ex Inflation (QoQ) (3Q)

0.9%

0.3%

Private Wages ex Overtime (QoQ) (3Q)

0.5%

0.4%

Nevertheless, the RBNZ may retain a wait-and-see approach amid the slowdown in the Asia-Pacific region, and the kiwi may trade heavy next month should the central bank adopt a more neutral tone for monetary policy.

How To Trade This Event Risk(Video)

Bullish NZD Trade: RBNZ Offers More Detailed Exit Strategy

  • Need green, five-minute candle following a hawkish statement to consider a long NZDUSD trade
  • If market reaction favors a long trade, buy NZDUSD with two separate position
  • Set stop at the near-by swing low/reasonable distance from cost; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is met, set reasonable limit
Bearish NZD Trade: Wheeler Scales Back Hawkish Tone & Strengthens Verbal Intervention

  • Need red, five-minute candle to favor a short NZDUSD trade
  • Implement same strategy as the bullish New Zealand dollar trade, just in opposite direction
Potential Price Targets For The Rate Decision

Forex_NZDUSD_to_Eye_Higher_High_on_Hawkish_RBNZ_Detailed_Exit_body_Picture_2.png, NZDUSD to Eye Higher High on Hawkish RBNZ, Detailed ExitDaily Chart - Created Using FXCM Marketscope 2.0

  • Appears to Be Carving Higher Low Around 0.8200 Handle- Higher High on Tap?
  • Relative Strength Index Breaks Out; Retains Bullish Trend from May 2013
  • Interim resistance: 0.8430 (23.6% retracement) to 0.8440 (78.6% retracement)
  • Interim support: 0.8100 Pivot to 0.8130 (50.0% retracement)
Impact that the RBNZ Interest Rate Decision has had on NZD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC 2013

12/11/2014 20:00 GMT

2.50%

2.50%

+24

flat

December 2013 Reserve Bank of New Zealand Interest Rate Decision

Forex_NZDUSD_to_Eye_Higher_High_on_Hawkish_RBNZ_Detailed_Exit_body_Picture_1.png, NZDUSD to Eye Higher High on Hawkish RBNZ, Detailed ExitThe Kiwi saw a move to the upside at the December RBNZ meeting as Wheeler hinted that rate increases would occur in the future in order to maintain price levels. Wheeler said that he was ‘serious’ about containing inflation while noting once more that the Kiwi exchange rate remains high. Although at the December meeting we saw the Kiwi remain flat at the end of the day, with the FOMC rate decision at 19:00GMT we are likely to see much more volatility. Comments on future rate hikes and inflation data out of New Zealand will remain key moving forward.



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