Trading the Reserve Bank of New Zealand Rate Decision

January 25th, 2:50 pm by Sam

(eToro Blog) The Reserve Bank of New Zealand will announce its interest rate decision at 9:00 pm London time later today, and analysts expect that the current benchmark rate will be held at unchanged at 2.5%. In general, OpenBook traders are bullish on the NZD/USD pair, and ahead of the rate decision, trader kercado has been scalping the NZD/USD in the Asian session. While the NZD/USD does not attract as much trading activity as the EUR/USD, the pair has presented plenty of opportunities as it rallied from 0.7470 towards 0.8100 in the last 30 days. Using a high risk strategy trader kercado has been watching the 0.8100 level on the NZD/USD and taking positions on both sides of the market.

Traders on OpenBook are primarily long the NZD/USD, with average limits at 0.8200 and stops at 0.8000. Some traders have been taking longer term positions on the NZD/USD and expect the pair to continue to rise higher as it appears that the RBNZ remains reluctant to cut rates. Trader terrassier expects the NZD/USD to target 0.8221. This trader, who has returned 96% in the last 30 days, has allocated 7.4% of their portfolio to trading the NZD/USD with average gain of 3.8%. Trader Pep3eltoro closed a long NZD/USD position with a 19% gain. This trader took some profits off the table and has another long position open on the NZD/USD with a profit target at 0.8116.

Top trader robepu, who has 358 copiers and almost 3000 followers on OpenBook, believes that the NZD/USD is due for a correction and is heavily short the pair. This trader has been selling NZD/USD short for the last seven days and booking 5% – 15% profit on the pair. The trader has allocated 10% of his portfolio to trading the NZD/USD and is holding several open positions on the pair as we head into the rate announcement. Looking at his profit targets, the trader is expecting the pair to go as low as 0.8000.

At the RBNZ’s previous policy meeting, Governor Alan Bollard had said that although global economic conditions had deteriorated, in New Zealand that was balanced with moderate domestic growth. In maintaining a neutral monetary policy and leaving rates unchanged, the NZD/USD remained range bound.

Recent New Zealand economic developments to take in consideration

Inflation rose 1.8% in the 4th quarter as compared to a 4.6% rise in the previous one. On a year-over-year basis, exports rose 6.8% in November and the value of exports rose to a record $3.9 billion. The latest GDP report shows that the economy grew 0.8% in the 3rd quarter, a strong improvement from the 0.1% growth of the 2nd quarter.

Scenario A: RBNZ keeps rates on hold with focus on inflation

If the RBNZ takes a hawkish stance as a result of underlying inflation exceeding their target rate, we might expect the NZD/USD to rise 50 pips higher after the announcement. OpenBook trader terrassier and Pep3eltoro will stand to gain in this scenario.

Scenario B: RBNZ keeps rates on hold with neutral bias

If the RBNZ continues to hold on to its neutral bias, traders likely won’t see any immediate changes; and the pair will continue to trade range bound in the short term. This scenario will create ample opportunity for trader Kercado to continue his scalping strategy on both sides of the market.

Scenario C: RBNZ cuts rates by 25 basis points

If the RBNZ decides to cut rates to protect growth, we might see the NZD/USD drop by 75 to 100 pips as this move would be unexpected. OpenBook trader robepu will stand to gain in this scenario with his bearish bias.