It’s been two months since we’ve had our last RBNZ interest rate decision, so we could be in for some wild action tomorrow when Graeme Wheeler and the rest of the central bank whizkids step up to the plate!
Take note that at April’s rate decision, Wheeler was actually pretty optimistic about the Kiwi economy. He pointed to increased consumer spending as well as a pickup in construction in the Canterbury region as reasons why the domestic economy was headed in the right direction. Given the optimistic tone in his voice, it was no surprise that the central bank kept rates steady at 2.50%.
One interesting quip that did come out from Wheeler’s mouth though was concern about the strength of the New Zealand dollar. At that time, NZD/USD was trading at around the .8400 level. Fast forward two months later and the pair is now trading at around .7900, more than FIVE HUNDRED pips lower!
Despite the sharp drop in NZD/USD, I think there still stands the chance that Wheeler will express concern about Kiwi strength, mainly because of what’s happening on AUD/NZD. After peaking at 1.2650 earlier this year, the pair has dropped 700 pips and is trading below the 1.2000 mark. Keep in mind that Australia is New Zealand’s largest trading partner, so this has an impact on export demand.
That said, I think while the RBNZ will keep rates steady at 2.50% and will once again express optimism about the local economy (both quarterly retail sales and unemployment improved during Q1 2013), it could also do some jawboning in an attempt to weaken the Kiwi.
Looking at the charts, we see that NZD/USD is testing a major support level on the daily timeframe.
If the level doesn’t hold, we can see the pair fall the way down to around .7450!
Tips & Tricks
Listen closely to the statement. How the market moves will largely depend on what the RBNZ has to say.
For instance, if they continue to jawbone and remark that the Kiwi is still overvalued, we could see NZD/USD break through support around .7850.
On the other hand, should RBNZ Governor Wheeler makeno mention of the Kiwi’s strength and expresses his optimism on the economy, we could see the Kiwi make a run for .8200. Take note that the RBNZ statement has been bullish for the last 5 of the 6 most recent releases.
But either way, it seems like a good idea to go with the pair’s initial direction until the start of the New York session.
I usually also recommend playing the fade. However, looking back at the pair’s most recent reaction to the event, it hasn’t worked out in the past three releases. You may want to avoid this game plan.
That’s it, folks! Would you trade the rate statement tomorrow?