FXTM: The RBNZ – Not a matter of what they do, but what they say

A continuation of weak economic data has followed, suggesting that the New Zealand economy might be struggling to cope with the rate adjustments. Although I am expecting the RBNZ to leave rates unchanged this month, it is a matter of what the central bank decision makers say after the interest rate decision which will be a key influence on what direction the Kiwi takes over the next period.

If the Monetary Policy Statement suggests the central bank remain keen on bringing interest rates back towards a neutral level (4%), investors should be wary of others pricing in a future rate increase from the RBNZ before 2014 concludes. Similarly, a hint that monetary tightening may resume in early 2015 might tempt investors back towards the Kiwi.

Economic data from New Zealand might have been weak in recent months, including dairy prices declining by an incredible 40%, but the RBNZ has always indicated that risks within the New Zealand housing sector, immigration and inflation would be the catalyst behind rate hikes.

If there are indications from Wednesday’s Monetary Policy Statement that the central bank continues to see risks within these areas, Kiwi appreciation should be on the cards.

From a technical standpoint on the Daily timeframe, the pair looks soft and has been following a bearish trendline for a while. At present, it appears investors are not pricing in any movement in rates from the RBNZ on Wednesday, which explains why the NZDUSD reached its lowest valuation (0.8230) since February on Tuesday.

However, both the RSI and Stochastic Oscillator are each suggesting that the Kiwi is currently oversold. Both of these indicators have developed quite a strong correlation with the NZDUSD in the past, with the pair refusing to stay in the oversold boundaries for long. I am curious about the prospect of a more hawkish than expected statement from the RBNZ encouraging the Kiwi to make upward moves back towards the trendline. Such a move would likely find resistance around 0.8282.

For more information please visit www.ForexCircles.com  

Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime Ltd, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.