Henry Liu
Former FPA Special Consultant
- Messages
- 473
RBNZ (Reserve Bank of New Zealand) will be releasing its interest rate decision today and it is widely expected that Gov. Bollard will hike rates today from the current level of 2.75% to 3.00%; here is the forecast:
5:00pm (NY Time) RBNZ Rate Decision Forecast 3.00% Previous 2.75%
ACTION: NZD/USD BUY 3.25% SELL 2.75%
The Trade Plan
With current forecast from over 14 economists surveyed by Bloomberg agreeing that RBNZ will hike rate during this meeting, possibilities of getting in on a trade after the release is not very likely; however, in the event that Gov. Bollard surprises the market by:
1. Keep rates unchanged: We should see a sell-off in the NZD immediately, and a spike trade to sell NZD/USD is recommended.
2. Over hikes to 3.25%: Demand for NZD should soar up, spike trade to buy NZD/USD is recommended.
For more information on my trading method:
Henry's Spike Trading Method
The Market
NZD has been on a rally partly due to the risk appetite sentiment and partly due to RBNZ's shift in its monetary policy. As it is widely expected for this rate decision to be inline with expectation and hike as expected, market's demand for NZD should remain strong.
Let me remind everyone that in April, NZIER (New Zealand Institute Of Economic Research) stated that there was no need for RBNZ to raise interest rates before September of 2010, and according to the same article, New Zealand’s economy will only grow a modest 3% this year, making a pre-emptive rate hike completely unnecesary…
This sentiment was echoed by Governor Bollard's recent comment in June 10 that GDP is expected to be at 3.1% for 2010. However, if we look at recent export activities on dairy products, a 26% increase in May, compared to a year ago, is should be adding some optimism in the economy.
Considering the broader market, Credit Suisse is predicting a 125 basis points hike on RBNZ for the next 12 months, therefore it is very likely for RBNZ to hike rates as expected and this tightening policy should continue on until the next meeting.
Courtesy of Bloomberg
Additional Thoughts
NZD is a very slow moving currency and for a news of this caliber, decent retracements are not likely. Considering the expectation for this release, if we do get an "as expected", market will be focusing on the accompanied statement, and if Bollard cautions the market about a possible pause, expect to see huge drop in NZD. If the opposite is true, Bollard remain bullish, then NZD may gain more ground... The most likely scenario is that Bollard reiterates recent rhetoric and market responds with muted reaction...
Also 5:00pm market is usually low in liquidity. Unless we get a surprise, it's probably best to stay out...
Pre-News Considerations
If NZD/USD drops to the support area, such as 0.7230 level, I would buy it and close before the 5pm betting on the bullish sentiment. But I think the AUD/NZD pair may be the better choice because while RBNZ is expecting to hike interested rate, RBA is expected to leave it unchanged next week. We should see a slow but steady drop in the pair, and a spike up to the 1.2300 level should provide safe SELL that could go from 100 to 300 pips of profit, depending on market sentiment...
For more information on history charts and data of RBNZ Rate Decision...
Thanks,
5:00pm (NY Time) RBNZ Rate Decision Forecast 3.00% Previous 2.75%
ACTION: NZD/USD BUY 3.25% SELL 2.75%
The Trade Plan
With current forecast from over 14 economists surveyed by Bloomberg agreeing that RBNZ will hike rate during this meeting, possibilities of getting in on a trade after the release is not very likely; however, in the event that Gov. Bollard surprises the market by:
1. Keep rates unchanged: We should see a sell-off in the NZD immediately, and a spike trade to sell NZD/USD is recommended.
2. Over hikes to 3.25%: Demand for NZD should soar up, spike trade to buy NZD/USD is recommended.
For more information on my trading method:
Henry's Spike Trading Method
The Market
NZD has been on a rally partly due to the risk appetite sentiment and partly due to RBNZ's shift in its monetary policy. As it is widely expected for this rate decision to be inline with expectation and hike as expected, market's demand for NZD should remain strong.
Let me remind everyone that in April, NZIER (New Zealand Institute Of Economic Research) stated that there was no need for RBNZ to raise interest rates before September of 2010, and according to the same article, New Zealand’s economy will only grow a modest 3% this year, making a pre-emptive rate hike completely unnecesary…
This sentiment was echoed by Governor Bollard's recent comment in June 10 that GDP is expected to be at 3.1% for 2010. However, if we look at recent export activities on dairy products, a 26% increase in May, compared to a year ago, is should be adding some optimism in the economy.
Considering the broader market, Credit Suisse is predicting a 125 basis points hike on RBNZ for the next 12 months, therefore it is very likely for RBNZ to hike rates as expected and this tightening policy should continue on until the next meeting.
Courtesy of Bloomberg
Additional Thoughts
NZD is a very slow moving currency and for a news of this caliber, decent retracements are not likely. Considering the expectation for this release, if we do get an "as expected", market will be focusing on the accompanied statement, and if Bollard cautions the market about a possible pause, expect to see huge drop in NZD. If the opposite is true, Bollard remain bullish, then NZD may gain more ground... The most likely scenario is that Bollard reiterates recent rhetoric and market responds with muted reaction...
Also 5:00pm market is usually low in liquidity. Unless we get a surprise, it's probably best to stay out...
Pre-News Considerations
If NZD/USD drops to the support area, such as 0.7230 level, I would buy it and close before the 5pm betting on the bullish sentiment. But I think the AUD/NZD pair may be the better choice because while RBNZ is expecting to hike interested rate, RBA is expected to leave it unchanged next week. We should see a slow but steady drop in the pair, and a spike up to the 1.2300 level should provide safe SELL that could go from 100 to 300 pips of profit, depending on market sentiment...
For more information on history charts and data of RBNZ Rate Decision...
Thanks,
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