Forex Signal (Wed September 15 2010, 5:00pm NY Time EDT) - NZ RBNZ Rate Decision

Henry Liu

Former FPA Special Consultant
RBNZ (Reserve Bank of New Zealand) will be releasing its interest rate decision today and it is widely expected that Gov. Bollard will keep rates unchanged today at 3.00%; here is the forecast:

5:00pm (NY Time) RBNZ Rate Decision Forecast 3.00% Previous 3.00%

The Trade Plan
With current forecast from over 14 economists surveyed by Bloomberg agreeing that RBNZ is likely to keep rates unchanged 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. Hike rates to 3.25%: We should see a strong demand in the NZD immediately, and a spike trade to BUY NZD/USD is recommended using spike trading method.

For more information on my trading method:
Henry's Spike Trading Method

The Market
NZD has been on a rally mostly due to the risk appetite sentiment. As it is widely expected for this rate decision to be unchanged due to the recent moderation in inflationary pressure and the the effects of earthquake on September 4, most analysts agree that RBNZ will not hike interest rate until 2011.

Therefore, it is possible that we may see some sell-off (short-term) in the NZD especially against AUD as in the coming months... However, if Governor Bollard remains optimisitc and plans to resume rate hike as soon as rebuilding takes place (earthquake), we could see some recovery in the NZD towards the end of the year...

Credit Suisse is predicting a 70 basis points hike on RBNZ for the next 12 months, therefore we should not discount a rate hike completely.

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...

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 spikes above the 0.7370 area, I may take a SELL trade. The overall long-term view for NZD is bearish, therefore the direction is definitely for a SELL.

For more information on history charts and data of RBNZ Rate Decision...


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