NZD/USD Rebound Vulnerable to RBNZ Verbal Intervention

- Reserve Bank of New Zealand (RBNZ) to Keep Cash Rate on Hold at 3.50%.

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

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

The Reserve Bank of New Zealand (RBNZ) is widely expected to keep the benchmark interest rate on hold at 3.50% in December, but the fresh batch of central bank rhetoric may drag on NZD/USD should Governor Graeme Wheeler retain the verbal intervention on the local currency.

What’s Expected:

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Why Is This Event Important:

As a result, NZD/USD may continue to carve lower highs & lows in December, and the policy divergence may continue to heavily impact the pair in 2015 especially as the Federal Reserve moves away from its easing cycle.

Expectations: Bearish Argument/Scenario

The widening trade deficit paired with the slowdown in the housing market may keep the RBNZ on the sidelines, and NZD/USD may extend the decline from the previous month should Governor Wheeler take a more aggressive approach to weaken the New Zealand dollar.

Risk: Bullish Argument/Scenario

Nevertheless, the RBNZ may scale back its dovish tone for monetary policy as stronger job & wage growth raises the fundamental outlook for the region, and NZD/USD may face a more meaningful rebound in the days ahead should the central bank show a greater willingness to lift the cash rate in 2015.

How To Trade This Event Risk(Video)

Bearish NZD Trade: RBNZ Retains Verbal Intervention, Curbs 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 Drops Dovish Tone for Monetary Policy

• 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

Chart - Created Using FXCM Marketscope 2.0

• Long-term outlook for NZD/USD remains bearish as price & RSI retain the bearish trends from earlier this year.
• Interim Resistance: 0.7970 (50% retracement) to 0.7980 (61.8% retracement)
• Interim Support: 0.7600 (38.2% expansion) to 0.7620 (50% expansion)

Read More:

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

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

Despite above-trend growth, the Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) 3.50% on the back of ‘modest’ inflation. It seems as though the RBNZ is in no rush to further normalize monetary policy as Governor Graeme Wheeler argues for a period of assessment before considering additional adjustment, and the New Zealand dollar remains at risk of facing additional headwinds over the near-term as the central bank retains the verbal intervention on the local currency. Despite the initial dip below 0.7775, the market reaction was short-lived, with NZD/USD closing the day at 0.7784.

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

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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