RBNZ catch traders off guard to send NZ tumbling

There was no surprise in hearing RBNZ had decided to hold, yet traders had hoped for a slightly more hawkish statement, not the dovish one presented due to a pickup in CPI data.


Summary of RBNZ’s May 2017 monetary policy statement

  • RBNZ left the Official Cash Rate (OCR) unchanged at 1.75 percent
  • Core CPI has generally remained low
  • TWI has fallen by around 5% since February
  • If sustained, it will help to rebalance the growth outlook towards the tradeable sector
  • GDP growth H2 ’16 was weaker than expected
  • Growth outlook remains positive
  • House price inflation has moderated further
  • The increase in March’s headline CPI was mainly due to higher tradeable inflation, which is likely temporary
  • Expect variability in headline CPI over the year ahead
  • Developments since the Feb are neutral for monetary policy
  • Monetary policy will remain accommodative for a considerable period
  • Numerous uncertainties remain and policy may need to adjust accordingly

RBNZ’s neutral stance and expectations for a variable CPI over the next 12-month was enough to shake off any pre-emptive bullish bets from NZD traders to abruptly put the NZ Dollar firmly in the black across the board.

Speaking afterwards, RBNZ Governor Graeme Wheeler reiterated concerns over trade protectionism and how they expect a lot of volatility around inflation numbers, for a major economy, New Zealand is a relatively small economy and being an export nation means they are particularly vulnerable to trade protectionism. Whilst this currently remains an unrealised fear, it is something which is likely to keep RBNZ on a neutral bias for longer with the potential to ease later if necessary.

By the early hours of the Asia session AUDNZD had gained 1.5%. It has already experienced its most volatile session since July ’16 and is currently was the most bullish session since March ’16 at the time of writing. We outlined a potential short scenario and this has clearly been obliterated. The strong rejection of the 200 MA also coincides with a lower, slightly bearish channel. From a technical standpoint, we are stepping aside as today’s move has already travelled about 2/3rd of the breadth of the channel. Moreover, it is also too close to the monthly pivot. However, a bullish setup could be considered on much shorter timeframes, yet we would question how much juice is left in the move so to trade with conservative targets and tighter stops.

We highlighted GBPNZD as a potential long although the original analysis outlined an ascending triangle. As can be the case with technical patterns then can and do need revising, so with the solid bullish gap higher and follow through, we now see it as a confirmed double bottom with an extension gap. As we are trading below 1.90 resistance and the weekly R2 pivot, we see this is a likely zone for potential profit taking and are on the lookout for a return to and respect of the blue breakout line. If we can build some sort of base here then perhaps we can trade the way to MR1, which coincides with the approximate target generated from the double bottom.

If we do trade beneath the blue line, it will invalidate the double bottom yet a bullish bias remains whilst we remain above the gap. In fact, a move towards this may be favourable (as long as it is not too sudden) as it improves the potential reward to risk ratio prior to the anticipated break above 1.90.

Matt Simpson | Senior Market Analyst

A certified technical analyst, combining macro themes, monetary policy and business cycles to generate Forex and commodity trade ideas.

RBNZ catch traders off guard to send NZ tumbling

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