Profit Mongers @ 3:38 PM, Wednesday July 27 2011
1700 NZD Interest Rate Decision (2.5% expected, 2.5% prior, 2.5% unanimous)
All 15 analysts surveyed by Bloomberg predict the RBNZ to keep rates on hold this release.
The Kiwi has strenthened significantly recently, reaching new all time highs. Naturally
the increase in strength of the currency will hold off inflationary pressures somewhat as
imports become cheaper, but will burden exports making them less competitive and perhaps
affecting the economy, possibly weaking it. At the moment the RBNZ is expected to hike
another 1% over the next year as data has been strong. The NZDUSD has been trending higher
but after every Rate Statement there has been some sort of consolidation, so this could
happen again this time if Bollard and co apply the brakes to rate expectations today in
any way. Recent economic data has printed higher than expectations and last week’s release
of Q2 consumer prices did not buck the trend – NZ CPI increased +1.0% vs. consensus estimates
of +0.8% (QoQ) and +5.3% vs. expected +5.1% (YoY) – suggesting accommodative OCR levels may
no longer be appropriate. We think the RBNZ will keep policy on hold, but believe accompanying
statements may maintain a hawkish tone - the central bank noted that removal of policy
accommodation would be determined by the ‘speed of the recovery’. However, the one caveat
to this is the rapid Kiwi appreciation as of late – NZD/USD has skyrocketed to record highs
just above the 0.8700 figure gaining more than 5% since June – and exists as the main risk
to more hawkish RBNZ rhetoric.
-If they unexpectedly hike rates, NZD/USD should rally 65-100 pips.
-If they unexpectedly cut rates, NZD/USD should drop 65-100 pips.
-If the statement indicates rates being hiked sooner, NZD/USD should rally 40-70 pips
-If the statement indicates rates being hiked later, NZD/USD should drop 40-70 pips
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