Gather ’round, folks!
The RBNZ is gearing up for their very first-rate decision this year so let’s take a look at NZD/USD‘s past price action to see if we can make some pips by trading this event!
What is the RBNZ Statement all about?
Interest rate decisions are actually a pretty big deal in the forex markets. They announce what direction the central bank wants to take with regards to monetary policy, which in turn affects demand for the domestic currency.
Expectations of an interest rate hike (or an actual one) could mean more demand for the domestic currency, as traders will be rewarded with a higher yield when holding bonds that are denominated in that currency. On the flip side, expectations of a rate cut typically decrease demand for the currency.
What can we expect from this statement?
Expectations are that the RBNZ will hold rates at 2.50%, just as it has since March 2011.
In the last statement, Wheeler didn’t express any eagerness to cut interest rates. In fact, he pinpointed that he expected stronger domestic demand and an improvement in the housing market as economic risks decreased.
While he also showed some concern about the labor market and strength of the Kiwi, overall, his comments were generally well-received by the markets.
At that time, NZD/USD reacted with a strong rally right after the rate statement as the pair jumped by roughly 30 pips. The Kiwi kept trading higher for the rest of the day, eventually outpacing the Greenback by more than a hundred pips during the middle of the U.S. session.
Chances are we’ll see more of the same at tomorrow’s rate statement, as there’s no reason to believe that the central bank will alter its stance.
In fact, we could see more optimism from the RBNZ, as recent data has shown that consumer spending is on the rise, which in turn could fuel even more activity in the housing market.
Tips and Tricks
Judging from NZD/USD’s reaction to the previous RBNZ statement, upbeat remarks from RBNZ head Graeme Wheeler could push the pair up during the Asian session until a few hours into the U.S. session.
The initial reaction is typically strong as the event candle can jump by 30-50 pips if the statement is hawkish. Price tends to move in a single direction and the rally can last for about a hundred pips.
Watch out for nearby major and minor psychological handles as those tend to act as turning points. You might want to adjust your stop to entry or trail it once the price reaches round number.
Note, however, that this event takes place during the early Asian session so if you won’t be able to watch your platform during the actual release, you might want to set your buy or sell orders ahead. But if you’re not comfortable with this, it’s better to stay out completely.
What’s your plan for this event?