Bearish NZD/USD Trend in Focus- Will RBNZ Remove Verbal Intervention?

- RBNZ Expected to Retain Current Policy Amid Period of ‘Interest Rate Stability’.

- Will RBNZ Governor Graeme Wheeler Remove the Verbal Intervention on Kiwi?

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Trading the News: Reserve Bank of New Zealand (RBNZ) Rate Decision

According to a Bloomberg News survey, all of the 13 economist polled see the Reserve Bank of New Zealand (RBNZ) keeping the interest rate on hold at 3.50%, but the fresh batch of central bank rhetoric may produce increased volatility in the NZD/USD as market participants weigh the outlook for monetary policy.

What’s Expected:

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Why Is This Event Important:

In light of the marked depreciation in the NZD/USD, the biggest risk for surprise will be a removal of the verbal intervention on the kiwi, and a further decline in the exchange rate may prompt Governor Graeme Wheeler to adopt a more hawkish tone for monetary policy as it fuels imported inflation.

Expectations: Bearish Argument/Scenario

Below-target inflation along with the slowdown in employment may encourage the RBNZ to retain a period of ‘interest rate stability’ in New Zealand, and the fresh batch of central bank rhetoric may spur a further decline in the NZD/USD should it drag on interest rate expectations.

Risk: Bullish Argument/Scenario

Nevertheless, the RBNZ may no longer jawbone the kiwi as the lower exchange rate raises the risk for imported inflation, and the NZD/USD may face a more meaningful rebound ahead of the next Fed meeting on September 17 should Governor Wheeler unexpectedly adopt a more hawkish tone for monetary policy.

How To Trade This Event Risk(Video)

Bearish NZD Trade: RBNZ Continues Talk Down Interest Rate Expectations

• Need red, five-minute candle following the statement to consider a short New Zealand dollar trade
• If market reaction favors selling kiwi, short NZD/USD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish NZD Trade: Governor Wheeler Removes Verbal Intervention

• Need green, five-minute candle to favor a long NZD/USD trade
• Implement same setup as the bullish New Zealand dollar trade, just in the opposite direction

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Potential Price Targets For The Release

NZD/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• Will look for fresh highs should the NZD/USD carve a higher-low in July
• Interim Resistance: 0.8430 (23.6% retracement) to 0.8450 (23.6% expansion)
• Interim Support: 0.8160 (100% expansion) to 0.8180 (38.2% retracement)

Read More:

Price & Time: USD/JPY Where To Next?

GBPJPY Pitchfork Setup- Scalps Target Sunday Gap

Impact that the RBNZ rate decision has had on NZD during the last meeting

June 2014 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision

As expected, the Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) by another 25 pips to 3.50%, marking the fourth consecutive interest rate hike since March 2014. However, the RBNZ revised down the GDP forecast to 3.7% from 4% in June amid falling export prices of diary and timber, and went onto say that there will ‘be a period of assessment before interest rates adjust further towards a more-neutral level’. The NZD/USD was pulled down nearly 90 pips following the shift in the policy outlook, with the pair ending the day at 0.8584.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail [email protected]. Follow me on Twitter at @DavidJSong.

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