The RBNZ meet next week at 0300 UK time on Wednesday July 13. The outlook for the RBNZ has been robust and from last November they took the most aggressive stance towards hiking rates with a terminal rate pushing up to nearly 4%. You can read about their last rate meeting here.
Don’t just look at the rate decision
Short term interest rate markets are pricing in a 100% chance of a 50 bps rate hike and a 67% chance of a 75 bps rate hike. So, 50 bps is expected and a 75 bps hike will be a slightly bullish surprise. However, rate hikes most likely won’t be the focus on Wednesday as it will all be about the future path of rates for the RBNZ.
Reason for caution
The Bank of New Zealand’s recently projected that New Zealand could enter into a recession in 2023. This was after a poor business opinion print. The BNZ’s head of research warned that the latest ANZ Bank’s survey of business opinion was ‘littered with indicators that fit with our view that the economy is headed into recession’. Although short term Interest Rate Markets are projecting that the RBNZ will hike to 4% by the end of the year from the current rate of 2.00%, and BNZ project that the rate will only reach to 3.5%.
What’s the possible AUD/NZD trade?
The trade is to buy AUDNZD if we see a less hawkish RBNZ. This is because markets are already pricing in a lot of interest rate hikes. Notice this symmetrical triangle feature on the daily chart.
If BNZ’s research is correct, and the RBNZ confirm their findings, then the AUDNZD should drift lower. If you are unsure of how to interpret the decision, take a look at the bond yield spread between the AU10Y and the NZ10Y as that will give you bond traders view.
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure. *Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM. This material is considered a marketing communication and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. HYCM does not take into account your personal investment objectives or financial situation. HYCM makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of HYCM, a third party, or otherwise. Without the approval of HYCM, reproduction or redistribution of this information isn’t permitted.