NZD Forecast – March 2009 Rate Cut
March 10th, 2009 Posted in Aussie - Kiwi, Chief Analyst Special Report
With the recent volatility in the forex market, it becomes more important to find those safe trades which will help maintain the security of your portfolio, but also a few risky trades which can deliver the big profits to your doorstep. No doubt many active traders are aware of the drop seen yesterday in the GBP pairs and crosses, but few are aware of what’s happening on the other side of the world.
The Reserve Bank of New Zealand (RBNZ) is preparing to make a significant cut to its short term interest rates; expectations are for a cut of 50 basis points, an adjustment from the previous forecast for a cut of 75 basis points. Now lately, these interest rate cuts have been tricky. We’ve witnessed rate cuts actually increase the value of the national currency, as was the case a few months back with the GBP and EUR; and we’ve seen rate cuts weigh in and drop-kick a currency, as we saw with the GBP this week (as a result of last week’s cut being priced in). Let’s take a look at a few NZD pairs and see what we come up with as a forecast for tomorrow’s rate decision.
NZD/USD
This pair has entered a clear down-trend over the past few months, with the NZD steadily losing strength to the safe-haven of the U.S. Dollar (1 USD is now capable of buying just under 2 NZD). This trend is not likely going to get broken from a monetary policy shift which will in fact weaken the NZD by releasing more of the currency into the market.
For this pair I’d just like to point out 2 things. First is the distinct, short-term increase in value for this pair which has occurred over the last few hours. Forex traders are smart. They know that tomorrow’s rate decision is most likely going to push the value of the NZD to new lows, so, in order to capture as much of that movement as possible, they are buying up NZD. In effect, they are pushing its price to an artificial high in order to make the fall that much greater. The second point is the practical side of this equation. The key here is try to enter your sell position at the highest possible point and ride out the downward tailspin which is likely to occur shortly after tomorrow’s announcement, but be careful as it may not be priced in until later in the week. Don’t forget to place your Stop and Limit orders at acceptable price levels.
GBP/NZD
The value of this pair is a little trickier to predict than the NZD/USD. Normally I would evaluate this pair to act in a similar fashion as the previously described pair, with an increase of the NZD followed by a drop. While this may indeed occur, there is the added factor of the GBP. With the recent plunge in the value of the Pound Sterling, the NZD may actually continue to make gains against this currency despite its anticipated rate cut. When trading on the GBP/NZD just make sure you place your Stop and Limit orders a little closer to home to be on the safe side. Don’t leave yourself overexposed with this highly volatile pair; especially during tomorrow’s trading.
AUD/NZD
These two island economies rival each other for who can lose more value in their nation’s currency over a 1-year time span. Both the AUD and NZD have dropped like a ton of bricks from a high-rise apartment building over the past few months, with the NZD on track to beat the AUD to the bottom by a hair. With a steady up-trend in this currency pair, Australia is still maintaining a slightly more powerful currency than New Zealand, at the moment. Tomorrow’s rate cut won’t change any of that. For the forex trader that’s looking for a safe bet, here it is: the AUD/NZD. This pair will most likely continue on its upward path for the near future.
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Tags: aud/nzd, Aussie, Forex, forex blog, forex market, Forex Trading, GBP/NZD, interest rate cut, interest rates, Kiwi trading, NZD forecast, NZD/USD, RBNZ rate cut
