NZD/USD FOR A STRONG SELL TODAY

RBNZ (Reserve Bank of New Zealand) will be releasing its interest rate decision today and it is widely expected that Gov. Bollard will keep rates unchanged today at 3.00%; here is the forecast:

4:00pm (NY Time) RBNZ Rate Decision Forecast 3.00% Previous 3.00%
ACTION: NZD/USD BUY 3.25%

The Trade Plan
With current forecast from all 15 economists surveyed by Bloomberg agreeing that RBNZ is likely to keep rates unchanged during this meeting, possibilities of getting in on a trade after the release is not very likely; however, in the event that Gov. Bollard surprises the market by:

   1. Hike rates to 3.25%: We should see a strong demand in the NZD immediately, and a spike trade to BUY NZD/USD is recommended using spike trading method.
   2. RBNZ Bollard talks about imminent future rate hikes in his accompanied speech; this should add strong demand for NZD. A spike trade to BUY NZDUSD should be justified.

The Market
NZD has been on a rally mostly due to Fed’s upcoming QE measure and risk appetite sentiment. As it is widely expected for this rate decision to be unchanged due to the recent moderation in inflation and consumer spending, plus the economic effects of earthquake on September 4, most analysts agree that RBNZ should not hike interest rate until 2011.

Therefore, it is possible that we may see some sell-off (short-term) in the NZD especially against AUD as in the coming months… However, if Governor Bollard remains optimisitc and plans to resume rate hike as soon as rebuilding takes place (earthquake), we could see some recovery in the NZD towards the end of the year…

With upcoming 3rd Quarter GDP forecast at flat to slightly negative and retail spending disappointing for the second month in a row, Governor Bollard of RBNZ stated that he “wouldn’t seem an unreasonable expectation” for no rate hikes until 2011.

Additional Thoughts
NZD is a very slow moving currency and for a news of this caliber, decent retracements are not likely. Considering the expectation for this release, if we do get an “as expected”, market will be focusing on the accompanied statement, and if Bollard cautions the market about a possible pause, expect to see huge drop in NZD. If the opposite is true, Bollard remain bullish, then NZD may gain more ground…

Also 4:00pm market is usually low in liquidity. Unless we get a surprise, it’s probably best to stay out…

Pre-News Considerations
If NZD/USD spikes above the 0.7510 area, I may take a SELL trade. The overall long-term view for NZD is bearish, therefore the direction is definitely for a SELL.