The New Zealand dollar (NZD) takes center stage today as we see a host of releases form the Reserve Bank of New Zealand (RBNZ) due to be released. The NZD had a good year against the worlds reserve currency as we saw the NZDUSD lifted off its lows in 2016 to make highs over 800 pips form its yearly open before settling at 400 pips. This year has started with an even bigger bang as we see the NZDUSD trading back at its 2016 highs as the NZD economy continues to impress with recent inflation reports having revised the 2-year inflation expectation aggressively upwards, supported by current inflation data. Today’s releases will either have the NZDUSD making higher highs than last year or falling back to this year open as the battle between bulls and bears continues.
Today’s data comes in the form of the RBNZ Rate Statement, expected unchanged at 1.75%, and the RBNZ Monetary Policy Statement and Press conference followed by a speech by the RBNZ Gov Wheeler. Given that the RBNZ is responsible for analyzing and forecasting economic growth in New Zealand before setting the monetary policy to be followed, all their views and comments are regarded as important and likely to cause volatility in the respective assets. The Interest rates are expected to remain unchanged and so any changes to the rate will see large swings in price, with a rate hike likely to see the NZD strengthen while a rate cut would see the NZD weaken.
However, given that investors do not expect a rate hike, markets are likely to focus on the Monetary Policy Statement, in which the RBNZ will state how they expect to achieve their inflation mandate, giving valuable insight into the banks view of economic conditions and inflation in the economy. A better forecast of inflation and economic growth expectations along with optimism by the RBNZ will see the NZD appreciate and vice versa in the case of a pessimistic report. The last bit of volatility for the NZD will come in the form of a press conference and the speech by the RBNZ governor, which will give further details as to the state of the NZD economy as well as allow for a Q and A session which may reveal more of their intensions and current positions.
Overall, the NZD is due for some volatility which will create ample trading opportunities as bulls an bears battle it out for the new equilibrium either topping last year’s highs against the USD or falling back towards its multi-year lows.