Taking a shot on NZD/CAD as the upcoming RBNZ monetary policy decision is likely to shake up the market this week. What’s expected and will the range hold?
Short-term Range Play on NZD/CAD
As mentioned above in the intro, the Reserve Bank of New Zealand will be giving their latest monetary policy decision on Nov 13 at 1:00 am GMT. That’s just right around the corner and with some expecting another rate cut while others expecting a hold at 1.00%, the short-term volatility is likely to pick up for the Kiwi no matter what the outcome.
I’m not sure what the RBNZ will do, but I think the odds of a rate hike or hawkish commentary/outlook are very, very low, especially after weaker-than-expected inflation expectations and the rise in unemployment in New Zealand. So, I’m broadly bearish on the Kiwi, especially against the Canadian dollar, which has been a relative economic out performer among the majors and a higher-yielding currency.
From a technical analysis perspective, the pair has been in a range since September, once again failing to break above resistance in the 0.8450 – 0.8500 area. It looks like Kiwi bears are already taking control ahead of the big event, which is why I’m looking to scale into a short position starting at market. Given the level of uncertainty with the out come and market reaction, I’m going with a very wide stop to weather the volatility, and my target is the bottom of the range for a solid potential R:R, whether or not I get in on both positions. Here’s what I’m doing:
Short half position NZD/CAD at market (0.8368), max stop at 0.8575, max target at 0.8255
Short half position NZD/CAD at 0.8475 , max stop at 0.8575, max target at 0.8255
I’ll be risking 1.00% of my account if both positions are triggered for a 1.36:1 potential return-on-risk. I don’t foresee the possibility of turning this into a longer-term position trade, but if the momentum is strong, I may adjust my exit strategy if the target at 0.8255 is reached and the fundamental picture strongly favors further downside movement. If the RBNZ surprises with a “hawkish hold” and the market spikes higher, I may close down the position early/close open short orders to limit my max loss as in that situation, the market is likely to strongly move higher.
That’s it for now. Stay tuned for updates and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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