Kiwis Kut and a Look at Trading Expectations

March 10, 2016

Kiwi’s Kut and a Look at Trading Expectations:
Bucking economists’ expectations, the Reserve Bank of New Zealand stunned Forex markets this morning by cutting their overnight cash rate by 0.25% from 2.50% to 2.25%.

Of course when things don’t go to expectation, you get huge moves in Forex markets, and that’s exactly what we saw in the Kiwi today!

NZD/USD Hourly:
Forex chart, NZDUSD Daily, 160310
Click on chart to see a larger view.

“The trade-weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices.”

The RBNZ went on to cite concerns around economic growth (read concerns around China), inflation and the domestically important dairy industry as reasons behind the shock move and has continued to operate under a firm easing bias, noting the following key extract from the statement that you can read in full by clicking the link above.

“Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.”

Across the ditch, their Australian counterparts at the Reserve Bank of Australia are (at least publicly) not as concerned about China as the RBA continues to sit tight and the Aussie Dollar continues to break new highs.

In an environment of both weaker commodity prices and further cuts surely to come, the fact that AUD/USD is performing so well can be put down to yield. With the rest of the world in a race to the bottom, of course Australia is going to attract some attention.

AUD/USD Hourly:
Forex chart, AUDUSD Hourly, 160310
Click on chart to see a larger view.

With the European Central Bank meeting tonight and expected to add to its stimulus package, there is definite opportunity in AUD/USD heading forward!


Chart of the Day:
Speaking of tonight’s ECB meeting, let’s have a look at some more charts. In Tuesday’s blog we looked at some of the Euro expectations that markets might have heading into the meeting, so keep this in mind while reading today’s post.

EUR/USD Daily:
Forex chart, EURUSD Daily, 160310
Click on chart to see a larger view.

When it comes to these sorts of decisions, you should always be asking yourself in which direction the greatest risk lies?

With the retail market overweight short, backing up 99% of economist expectations that Draghi will deliver in stimulus, to me that risk lays to the upside in EUR/USD. Just look at this morning’s RBNZ decision for an example of markets being too expectant of an outcome and getting a huge re-pricing when things don’t go to plan.

We’d love to hear your thoughts on how you see the market positioned heading into the ECB decision, so give @VantageFX a mention on Twitter!


On the Calendar Thursday:
NZD Official Cash Rate
NZD RBNZ Rate Statement
NZD RBNZ Press Conference
NZD RBNZ Gov Wheeler Speaks

EUR Minimum Bid Rate

EUR ECB Press Conference
USD Unemployment Claims

Do you see opportunity trading market expectations? Take advantage on your own instant $50,000 Forex demo.

Dane Williams – @VantageFX

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