The Reserve Bank of New Zealand doesn’t like a strong NZD and the easiest way to undercut the currency would be not to hike rates at 2100 GMT today
To be clear, the chance of a hike today is very high. Thirteen of 15 economists surveyed by Bloomberg expect a hike and the OIS market is pricing in a 95% chance of a hike.
The upshot is that staying on the sidelines would make for a swift and severe move in the kiwi dollar. NZD/USD hit a two-week high at 0.8575 earlier today but would quickly (perhaps instantly) fall to last week’s low at 0.8400 in the event of no rate hike. Beyond that it would depend if the statement assured that more hikes were coming. I’d still expect 0.8400 to fall but support at the 200dma at 0.8379 or the 61.8% retracement at 0.8330 could lead to a bounce.
If the RBNZ hikes, the pair could still fall if Wheeler doesn’t signal more hikes this year.
NZDUSD daily
I’m always wary of RNBZ decisions because it’s not a committee unlike other central banks. Governor Wheeler consults others but actually makes the decision alone and that always adds extra risks. The recent fall in dairy exports and middling Q1 data mean there is a small but perhaps lucrative chance of a surprise.
