Trading NZD Ahead of RBNZ

Trading NZD Ahead of RBNZ

Chart Of The Day

Trading NZD Ahead of RBNZ

The New Zealand dollar is trading strongly ahead of the Reserve Bank’s monetary policy announcement and the question tomorrow will be whether the economy deteriorated enough to warrant three back-to-back rate cuts. Every one of the 17 economists surveyed by Bloomberg expect a 25bp rate cut but at the last meeting, the central bank dropped its reference to NZD being at an unjustified level which suggested they could keep rates steady in September. While there have been widespread problems in China, taking a look at the second table below, consumer spending, job ads and the housing market saw improvements since the last meeting. Dairy prices also increased at the last 2 auctions leaving the Global Dairy Trade index at a higher level in September compared to July. For these reasons, we believe that another rate cut is not a done deal and if we are right, the New Zealand dollar will spike higher.

Technically, NZD/USD still remains in a downtrend with near term resistance at the September highs right above 64 cents. If this level is broken, there’s no major resistance until 65 cents. On the downside, the August 24th spike low at 62 cents is support.

BK NZDCAD +78

Swing

NZDCAD Close Trade here at 0.8609 – will reload later for +78

NZDCAD Sell order at 0.8687 TRIGGERED

BK NZDCAD RBNZ Trade

Place Order to SELL NZDCAD at 0.8687 (we are selling on a BREAK lower if RBNZ cuts)

***Will add another order later if needed

Stop 0.9070

One of the most important event risks for currencies this week is tomorrow’s Reserve Bank of New Zealand monetary policy announcement. The decision will be a close one but we believe that the RBNZ will cut interest rates. Back in April when they last met, the central bank warned that they could lower interest rates if demand weakens and inflationary pressures continue to fall. They also described the NZ dollar as unjustifiably and unsustainably high, sending the currency sharply lower. Since then, the economy has weakened further with consumer spending and confidence deteriorating, manufacturing and service sector activity slowing and price pressures declining. Based on these readings alone, the central bank should cut interest rates but the housing market is still holding up well and most importantly, the New Zealand dollar has fallen sharply since the last monetary policy meeting, reducing the pressure to ease so the decision will be close. Should the Reserve Bank cut interest rates, NZD/CAD should be on its way to 85 cents

***Big trade risk is large, so positions should be small.

4 New Orders Ahead of RBNZ and AU Employment

Swing Top 5

Tonight is a BUSY one for the Australian and New Zealand dollars with the RBNZ rate decision and Australian employment report scheduled for release. Many of the major currencies are at key levels and these event risks could drive it beyond those rates. To take advantage of the potential volatility, we are laying out the following new pending orders. Please remember we are STILL long EUR/CHF but since it already hit T1, we can allow for 2 additional open trades before canceling the rest.

Place the following pending orders:

1. Place order to Sell NZD/CAD at 0.8977
Stop at 0.9037
Close 1/2 at 0.8947, move stop to breakeven
Close rest at 0.8825

2. Place order to Buy NZD/CHF at 0.7782
Stop at 0.7722
Close 1/2 at 0.7812, move stop to breakeven
Close rest at 0.7925

3. Place order to Buy EUR/AUD at 1.4228
Stop at 1.4168
Close 1/2 at 1.4258, move stop to breakeven
Close rest at 1.4450

4. Place order to Sell EUR/USD at 1.2835
Stop at 1.2895
Close 1/2 at 1.2805, move stop to breakeven
Close rest at 1.2675

***Remember, if 2 orders trigger without one hitting T1 first, all other orders are canceled

BKSWING – New AUD and NZD Trades ahead of RBNZ, AU Employment

Swing

We’ve got less than 24 hours to go before this week’s most important event risk – the RBNZ rate decision. The RBNZ is widely expected to raise interest rates but they have every reason to keep them unchanged if they choose to do so. Between their decision on what to do with interest rates this month and forward guidance, NZD should have an unusually large reaction to the monetary policy announcement. We are laying out a few NZD orders to take advantage of that opportunity. At the same time, Australian employment is also one of this week’s top reports and the state of the labor market will play a big role in whether the currency fails at or takes out its year to date high.

***Remember, if 2 orders trigger without one hitting T1 first, all other orders are canceled

New Pending Orders

1. Sell EUR/NZD at 1.5738

Stop at 1.5798

Close 1/2 at 1.5708, move stop to breakeven

Close rest at 1.5595

2. Buy NZD/USD at 0.8650

Stop at 0.8590

Close 1/2 at 0.8680, move stop to breakeven

Close rest at 0.8775

3. Buy GBP/NZD at 1.9710

Stop at 1.9650

Close 1/2 at 1.9740, move stop to breakeven

Close rest at 1.9900

4. Buy GBP/AUD at 1.7962

Stop at 1.7902

Close 1/2 at 1.7992, move stop to breakeven

Close rest at 1.8150

5. Buy AUD/NZD at 1.1067

Stop at 1.1007

Close 1/2 at 1.1097, move stop to breakeven

Close rest at 1.1200

We still have the following pending orders:

1. Sell GBP/JPY at 170.77

Stop at 171.37

Close 1/2 at 170.47, move stop to breakeven

Close rest at 169.57

2. Sell EUR/JPY at 137.77

Stop at 138.37

Close 1/2 at 137.47, move stop to breakeven

Close rest at 136.27

3. Sell EUR/GBP at 0.8044

Stop at 0.8104

Close 1/2 at 0.8014, move stop to breakeven

Close rest at 0.7950

***Remember, if 2 orders trigger without one hitting T1 first, all other orders are canceled

BKSWING – Add NZD Orders Ahead of RBNZ, Other Order Adjustments

Swing

*We are currently long EUR/AUD

**CANCEL AUD/NZD, AUD/CAD Buy orders AND EUR/AUD Sell Order

Of all the economic data scheduled for release this week, we think the greatest volatility will come from this afternoon’s RBNZ rate decision. While 15 out of 15 economists expect the central bank to raise interest rates by 25bp, there’s a very good chance they could pause afterwards by saying that future rate hikes are conditional. If they choose to do so, it could erase any positive sentiment caused by tightening and could lead to a deep reversal in the currency. Therefore we are laying out 2 orders to sell NZD vs. the USD and GBP. We also want to be positioned for the off chance they shock the market by remaining committed to tightening and are therefore adding a long NZD order vs. GBP.

Place the following NEW orders

1. Sell NZD/USD at 0.8487

Stop 0.8547

Close 1/2 at 0.8457 move stop to breakeven

Close rest 0.8325

2. Buy GBP/NZD at 1.9654

Stop 1.9554

Close 1/2 at 1.9694 move stop to breakeven

Close rest 1.9754

3. Sell GBP/NZD at 1.9445

Stop 1.9545

Close 1/2 at 1.9405 move stop to breakeven

Close rest 1.9345

We still have the following pending orders on:

4.Sell AUD/JPY 94.72

Stop 95.32

Cover 1/2 at 94.42 move stop to breakeven

Cover rest 93.00

**If more than 2 sets of orders trigger without one hitting T1 first, cancel the rest.

NZD/CAD – In Play Ahead of RBNZ (Click Chart to Enlarge)

NZD/CAD – In Play Ahead of RBNZ (Click Chart to Enlarge)

Chart Of The Day

Fundamentals

With a Reserve Bank of New Zealand meeting scheduled for tomorrow, the New Zealand dollar is in play. The RBNZ is not expected to change interest rates but they will be preparing the markets for a rate hike in very near future. Since the last monetary policy meeting, there have been more improvements than deterioration in New Zealand’s economy. Inflation is on the rise, along with manufacturing activity, business confidence and housing. The drop in consumer confidence, job advertisements and service sector activity has been nominal and even though the Chinese and Australian economies have weakened, New Zealand remains buoyant. We expect hawkish comments from the central bank that should drive NZD higher and are watching the currency’s pairs movement against the CAD. There’s a significant contrast between the outlook for Canada and New Zealand. When they last met, Bank of Canada Governor Poloz said he preferred to see a weaker currency. Low inflation and weak growth in Canada means the BoC could consider lowering rates if the economy weakens further. Hawkish comments from the RBNZ should drive NZD/CAD to multiyear highs.

Technicals

Taking a look at the daily chart of NZD/CAD, the currency pair is closing in on a year to date high. Above 0.9284, there is no major resistance in NZD/CAD until its record high of 0.9383. Support is at the big round number of 90 cents. If this level is broken, NZD/CAD could fall as low as 87 cents.