RBNZ Rate Meeting and Market Reactions: What We Were Looking For and What to Trade Now
As we approached the Reserve Bank of New Zealand (RBNZ) rate meeting at 03:00 UK time on August 14, market participants were keenly watching for key economic indicators and potential monetary policy adjustments that could influence trading decisions.
Pre-Meeting Expectations:
In the lead-up to the meeting, the New Zealand CPI year-over-year (Y/Y) for Q2 had fallen to 3.3%, which was below the expected 3.4% and significantly lower than the previous 4.0%. Despite this drop, inflation remained above the target range. At the same time, employment data for Q2 surprised the market with a 0.4% job growth rate, beating the expected -0.2%. This combination of lower-than-expected inflation and stronger employment raised questions about whether the RBNZ would adjust its official cash rate (OCR) projections lower, considering the mixed economic signals.
Market expectations were divided. Out of 31 economists surveyed by Reuters, 19 expected the OCR to remain unchanged at 5.50%, while 12 anticipated a 25bps cut. The money markets reflected this uncertainty, with a 74% chance of a rate cut priced in. Additionally, a recent inflation forecast had come in lower than expected, adding further fuel to the speculation.
Given this backdrop, we outlined two potential scenarios:
- Dovish Case:
- If the RBNZ cut rates and signaled at least two more cuts for the year, we anticipated strong AUDNZD buying. The rationale was that a dovish outlook would push down the OCR to 3.75%-4.0% by the end of 2025, leading to an immediate market reaction favoring AUDNZD.
- Hawkish Case:
- Conversely, if the RBNZ left the OCR unchanged and suggested only a single rate cut this year, or if it projected a higher OCR (4.5%-4.75%) by the end of 2025, we expected NZDCAD buyers to step in. This scenario would suggest that the RBNZ was less concerned about inflation cooling too rapidly and more focused on maintaining economic stability.
Post-Meeting Analysis: Intraday Opportunity in AUDNZD
Following the RBNZ meeting, the central bank decided to cut rates by 25bps and forecasted two more rate cuts for this year. This dovish stance has opened up a significant trading opportunity in AUDNZD. With the market now expecting further easing from the RBNZ, a swing buy in AUDNZD is favored.
From a technical perspective, there’s an intraday buy bias starting from the 1.0980 level. If the daily chart shows a close above 1.1015, this level could become a key support zone, reinforcing the bullish outlook. Traders should watch for pullbacks in the coming days as opportunities to enter the market.
This outcome aligns well with our pre-meeting expectations, reinforcing the importance of closely monitoring central bank decisions and their broader economic implications.
Trading Strategy
For traders looking to capitalize on this setup, the strategy is relatively straightforward. Enter long positions above the 1.0976 level, with an initial target set at the 1.1015 region. This target corresponds to a significant resistance level, which, if reached, would represent a successful breakout from the current consolidation phase.
To manage risk, stop-loss orders should be placed just below the 1.0940 support level. This ensures that in the event of a bearish reversal, losses are minimized. Traders should also remain vigilant for the wage data release, as this will likely be the catalyst for the next major move in the AUD/NZD pair.
Conclusion
The AUD/NZD pair presents a compelling trading opportunity in the coming days, with both technical and fundamental factors aligning in favor of a potential upside move. Traders who are prepared to act on the Australian wage data release can use the outlined strategy to navigate this opportunity effectively. With the RBNZ meeting on the horizon, the next 48 hours could be pivotal for this currency pair, making it an essential watch for forex traders.