With RBNZ Governor Graeme Wheeler set to deliver his very first rate statement tomorrow at 8:00 pm GMT, you can bet that the pressure is on, especially since calls for a rate cut have been getting louder and louder recently.
Keep in mind that the Reserve Bank of New Zealand (RBNZ) official cash rate has been untouched at a record low of 2.5% since March of last year. And while 15 out of 15 economists surveyed in a Reuturs poll expect no change to the OCR, traders believe that there’s a 13% chance the RBNZ may cut rates tomorrow.
Why? Blame it on the CPI!
Quarterly CPI (a measure of consumer inflation) rose just 0.3% in Q3 2012, which is significantly slower than the 0.5% uptick the RBNZ had predicted. In turn, this took the annual pace of inflation down to just 0.8%.
Take note, this is the first time since 2002 that inflation slipped below the RBNZ’s target band between 1% and 3%. So yes, this IS a big deal!
But is it enough to warrant an interest rate cut? Market geeks don’t think so. For one, they expect the new RBNZ head honcho to be cautious in his first OCR announcement.
Besides, New Zealand’s economic landscape hasn’t changed much. While NZD/USD is trading around 600 pips above its May lows, it’s still a couple hundred pips below this year’s highs. And don’t forget – New Zealand’s GDP came in stronger-than-expected a few weeks ago! So there’s really not much reason for the central bank to change its wait-and-see stance just yet.
Still, that doesn’t mean that we can’t trade NZD/USD. Looking at past event charts, we can see that NZD/USD has a tendency to trade higher whenever the RBNZ announces its rates. Try looking for buy opportunities (especially on dips) if you’re in the mood to trade the OCR statement.
Also keep in mind that markets aren’t really expecting a rate cut and that traders may have already priced in the effects of the recent CPI report, so any downward pressure on NZD/USD could be short-lived.
Ah, but you know the forex market. One day you’re in, the next day you’re out. Oh wait, that was from a different show. The point is that news events are rarely black and white, especially those involving rate decisions.
Wheeler might not announce a rate cut, but he could say something that could drastically change the markets’ interest rate outlook and send the Kiwi crashing. You can never be sure, so always practice smart risk management!