- Reserve Bank of New Zealand (RBNZ) to Reduce Official Cash Rate at 2.00%.
- Will Governor Graeme Wheeler Endorse a Series of Rate-Cuts?
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Trading the News: Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
According to a Bloomberg News survey, all of the 16 economists polled forecast the Reserve Bank of New Zealand (RBNZ) to lower the benchmark interest rate to a fresh record-low of 2.00% in August, and NZD/USD stands at risk of giving back the advance from earlier this year should the central bank endorse a series of rate-cuts.
What’s Expected:
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Why Is This Event Important:With the RBNZ putting greater emphasis on the exchange rate, Governor Graeme Wheeler may increase his efforts to weaken the New Zealand dollar as ‘the trade-weighted exchange rate is 6 percent higher than assumed,’ and the central bank may talk up expectations for lower borrowing-costs as ‘headline inflation is being held below the target band by continuing negative tradables inflation.’
Expectations: Bearish Argument/Scenario
Release | Expected | Actual |
Private Wages ex. Overtime (QoQ) (2Q) | 0.5% | 0.4% |
Trade Balance (JUN) | 150M | 127M |
Consumer Price Index (YoY) (2Q) | 0.5% | 0.4% |
Subdued wage growth accompanied by the weakening outlook for global growth may push the RBNZ to further support the real economy, and the New Zealand dollar may face heavy selling pressures over the coming months should the central bank deliver a 25bp rate-cut paired with a dovish outlook for monetary policy.
Risk: Bullish Argument/Scenario
Release | Expected | Actual |
Building Permits (MoM) (JUN) | -- | 16.3% |
QV House Price (YoY) (JUL) | -- | 14.1% |
Gross Domestic Product (YoY) (1Q) | 2.6% | 2.8% |
However, with market expectations already heavily tilted towards a rate-cut, NZD/USD may face a knee-jerk reaction should the RBNZ stick with the status quo and endorse a wait-and-see approach for the foreseeable future.
How To Trade This Event Risk(Video)
Bearish NZD Trade: Governor Wheeler Pledges to Ease Policy Further
- Need green, five-minute candle following the rate decision to consider a long NZD/USD position.
- If market reaction favors a bullish kiwi trade, buy NZD/USD with two separate position.
- Set stop at the near-by swing low/reasonable distance from cost; at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is met, set reasonable limit.
Bullish NZD Trade: RBNZ Adopts More Balanced Tone
- Need red, five-minute candle to favor a short NZD/USD trade.
- Implement same strategy as the bullish New Zealand dollar trade, just in reverse.
Potential Price Targets For The Release
NZD/USD Daily
Chart - Created Using FXCM Marketscope 2.0
- Despite the threat of a head-and-shoulders top, NZD/USD may extend the advance from earlier this week and work its way back towards the 2016 high (0.7324) should the RBNZ soften its dovish outlook for monetary policy.
- Key Resistance: 0.7330 (38.2% retracement) to 0.7340 (61.8% expansion)
- Interim Support: 0.6560 (23.6% retracement) to 0.6570 (100% expansion)
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Impact that the RBNZ rate decision has had on NZD/USD during the last meeting
Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
JUN 2016 | 06/08/2016 21:00 GMT | 2.25% | 2.25% | +74 | +88 |
June 2016 Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
The Reserve Bank of New Zealand (RBNZ) kept the official cash rate unchanged at 2.25% in June, but endorsed a dovish outlook for monetary policy, with the central bank warning ‘further policy easing may be required to ensure that future average inflation settles near the middle of the target range.’ Nevertheless, it seems as though Governor Graeme Wheeler will preserve the current policy for the foreseeable future as the central bank anticipates ‘inflation to strengthen reflecting the accommodative stance of monetary policy,’ but the RBNZ may reestablish its easing cycle over the coming months as should the data prints coming out of the region fail to meet central bank expectations. The New Zealand dollar gained ground following the rate-decision, with the NZD/USD advancing from 0.7012 to end the day at 0.7100.
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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