Anybody trade these interest rate decisions this week? If you weren’t able to watch these forex events play out, here’s a rundown of the main takeaways from the RBNZ and SNB monetary policy statements:
Reserve Bank of New Zealand
It seems that the Kiwi is already immune to cautious remarks from the RBNZ! Even though Governor Wheeler projected that inflationary pressures are likely to stay subdued and reiterated that the New Zealand dollar is “unjustifiably and unsustainably” high, forex traders focused more on his comments on housing inflation.
You see, most market watchers had been anticipating dovish remarks from RBNZ policymakers, especially since dairy prices have been continuously dropping. Heck, the dairy price slump has been enough to push Fonterra, New Zealand’s largest company, to cut forecasts for milk payouts to farmers.
Instead, the central bank head hinted that interest rate adjustments might be warranted, highlighting the sudden surge in home sales and prices last month. Wheeler also mentioned that improving employment trends and better growth prospects might bring the RBNZ closer to hiking rates next year. No wonder the Kiwi staged a strong rally during this event!
Swiss National Bank
The SNB decision also turned out to be a bit of surprise, as it resulted to a franc rally and brought EUR/CHF dangerously close to the 1.2000 floor once more. Although SNB head Thomas Jordan repeated his usual spiel of being ready to defend the franc peg if needed, it seems that forex market watchers are no longer buying his jawboning attempts.
Many were expecting the SNB to announce negative deposit rates, as the country is teetering towards deflation. In fact, the SNB has room to announce other easing measures or to intervene in the forex market, as the recent Swiss gold initiative referendum revealed that the central bank would no longer need to maintain a 20% gold reserves requirement. For now, Jordan and his men decided to stand pat, patiently waiting for the ECB to announce QE before making their move.
Perhaps the biggest takeaway from these central bank statements and the resulting forex price action is that expectations do play a role in determining post-event currency movements. As I always mention, with strong expectations comes a strong possibility of disappointment. In this case, everybody and his momma were expecting downbeat RBNZ and SNB statements, which explains why short positions were quickly closed and biases flipped as soon as a few remotely positive remarks were made.
Do you think the initial price reaction to these events would last though? Or is a reversal bound to happen?