Forex Trading Guide: RBNZ Interest Rate Decision

It’s time for another trading guide! This time we’re setting our sights on the Reserve Bank of New Zealand’s (RBNZ) interest rate decision coming up tomorrow at 9:00 pm GMT. Will the RBNZ raise its rates for a second month in a row? What could happen to NZD if it doesn’t? Let’s break it down.

What happened last month?

Last March 13 the RBNZ had hiked its rates by 25 basis points from 2.50% to 2.75%, a first since July 2010. But analysts had already expected that.

What they didn’t expect was for the RBNZ to raise its growth and inflation forecasts AND hint at more rates to come. In fact, RBNZ Governor Graeme Wheeler had even hinted that rates would be increased by 2 full percentage points over the next TWO years!

NZD 1-Hour Forex Charts

NZD 1-Hour Forex Charts

Not surprisingly, the upbeat statement spurred on the Kiwi bulls. Major Kiwi pairs like NZD/USD and NZD/JPY had jumped by more than 50 pips in the first hour of the release while less popular Kiwi pairs like EUR/NZD and AUD/NZD also showed strong positive initial reactions.

What’s expected this time around?

With economic indicators like GDP and business confidence supporting another rate hike, market players are generally expecting the RBNZ to raise its rates by another 25 basis points to 3.00% in April. However, some analysts aren’t too confident about the call.

For one thing, dairy product prices, one of New Zealand’s top export products, fell by as much as 16% since the March decision and could affect the RBNZ’s growth forecasts.

Inflation is also an issue, as it printed at 0.3%, weaker than the expected 0.5% uptick for Q1 2014. Remember that the RBNZ expects 1.9% inflation by the end of the year. Last but not the least, some investors are expecting the RBNZ to remark on the Kiwi’s recent strength and maybe even jawbone the currency.

How can you trade this event?

Given what we know, it makes to expect another rate hike (but with a more cautious tone) from the RBNZ. If this scenario plays out, then the New Zealand dollar will likely get another boost against its counterparts. Just like last month, NZD/USD and NZD/JPY could maintain their intraday trends until the U.S. session while Kiwi crosses like EUR/NZD and AUD/NZD could go back to tight ranges after the initial reaction.

If the RBNZ refrains from hiking its rates though, then we’ll probably see broad Kiwi weakness and profit-taking. NZD/USD, in particular, is primed for profit-taking after getting rejected at the .8700 twice over the past couple of weeks.

If news or day trading is not your thing, you can always sit back and take note of what the RBNZ has to say. Take note of any market-changing news and use it for your longer-term comdoll trades. In any case, don’t even think of missing the RBNZ’s decision this month.