NZD/USD: Banking on Volatility

The day that investors around the world have been waiting for since the start of the week is finally upon us and the Federal Reserve will be making their monetary policy decision a little later this afternoon. Overwhelming expectations expect the Fed to taper away the final $15 billion from their Quantitative Easing program, but maintain an air of caution by cementing the notion that they will remain as accommodative as possible for an extended period of time. The interpretation of the extended period by the market means that many expect interest rates to stay at effectively 0% until mid to late 2015. Perhaps the Fed is waiting to see if Tony Stark and Co. can sell enough tickets to keep consumerism on course (I mean, the Fed’s got to be full of comic book nerds, right?).

The Fed isn’t the only one slated to make waves this afternoon though as the Reserve Bank of New Zealand will be flexing their muscles 2 hours after the Fed. The expectation for them is that they may drop their tightening bias and switch to a more neutral stance which could prompt another move lower in the NZD.

Simply looking at the expectations of these two meetings, it seems logical to assume that the USD would appreciate given the Fed’s confidence in the US economy to continue its recovery without the extra supplement of QE, and the NZD would depreciate given the RBNZ’s insistence on switching from hawkish to neutral. Pretty easy, huh? Unfortunately, it’s not that easy to decipher and those expectations actually play in to the price before the announcements are made which could make these releases particularly volatile.

Further complicating the situation is that volatility is where the greatest opportunities lie in trading, but simultaneously the most risky. Regardless, the NZD/USD has been appreciating consistently since late last week and is approaching an intriguing Fibonacci retracement and previous resistance level which could provide the necessary push to usher in the logical proliferation of this dynamic. No matter what technical patterns persist though be wary of extreme volatility and give yourself plenty of room to let the market find its equilibrium.