Trading The RBNZ Rate Decision & Statement

We’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the RBNZ Rate Decision this week...
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We’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the RBNZ Rate Decision this week…

The move we’re going to be looking at is this one here on GBPNZD. So, let’s break this down and see how you could have predicted and caught this move, using our market commentary.

So, firstly we need to understand the context or the baseline surrounding this pair before the move took place…

Now if we quickly look inside the Financial Source Terminal on the 11th of February, we released our Currency Drivers reports for all the major currencies. This was the day before the RBNZ decision.

In the reports we explained that the current fundamental bias at that time for the NZD was bullish due to a data dependent RBNZ as well as a string of positive economic data points that came in much higher that the bank had projected.

On the other hand, we saw that the fundamental bias for the GBP was bearish due to the increasing likelihood of the UK and EU not being able to agree to a trade deal before the December 2020 transition deadline.

Furthermore, we the NZD was also supported in the short-term as the market was in a strong risk-on tone due to some dissipating fears regarding the impact of the Coronavirus.

Once the baseline was in place the next step is to identify the type of breaking news that would generate the biggest market moving shift…

So, for this we can go back to the terminal again to the currency research section where we highlighted that the RBNZ meeting for that week had potential to create some great trading opportunities due to the fact that some participants were expecting the bank to move away from their strong easing bias and take on a more neutral stance, whilst others were expecting the bank to stick to their easing bias due to the potential threat of the Coronavirus on the economy.

Also, in the report, we explained what specific things to look for in the RBNZ statement that could see a dovish or hawkish sentiment shift. We explained that a hawkish shift would include the bank taking a neutral stance by moving away from a lower expected interest rate, by talking up recent positive data and talking down the impacted of the virus and viewing it as having only a short-term negative impact.

So now all we needed next was the trigger, in other words, the sentiment shift that we identified ahead of time, to actually take place. So, also in the terminal, later on the 12th we had the release of the RBNZ rate decision and statement. Looking at the statement we saw the bank increased their projection of the OCR, they also talked up recent domestic data and more important explained that they project the overall impact of the Coronavirus will be of a short duration.

Looking at the chart on a smaller timeframe like the 1 minute, we can see that within this first candle is when the actual statement was released and caused a quick drop of over 70 pips to the downside.

Now even if it took you a minute or two to digest the information you could still have jumped in and took advantage of the remaining 100 pips downwards to the next key support area on the chart. Even though the written statement was released at 2 minutes after the release, the Financial Source Audio Squawk squawked the statement details the moment it was released which means that you would have had enough time to hear the important details you were waiting for and jump in.

So, if you’re interested in learning more about how our market commentary can help you interpret news and fundamental analysis into profitable trades like this, click menu above and check out Financial Source.

 

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