Trade the strong against the weak

One of the key trading principles to really embrace in the FX world is that of pairing strength against weakness.

So, yesterday we had a good example of putting this into practice via a central bank policy decision. This was the decision by the RBNZ.

Going into the RBNZ interest rate decision, you may ask yourself what to do before the RBNZ rate meeting. The answer is simple, you are going to wait. Waiting for the central bank to show its hand. The RBNZ has now done that and that is what gives us a bearish bias.

Yesterday, after the decision we posted this outlook.

 

Reasons for NZD weakness

The RBNZ launched a set of very bearish policies extending its asset purchases programme. They increased their quantitative easing (LSAP) programme to $100bn from $60bln. Prior to this meeting, there were no expectations of an extension in their bond purchases. Furthermore, they extended the length of the programme from 12 to 22 months. To top off the bearish outlook the RBNZ then expressed a preference for a lower or negative official cash rate as well as a Funding for Lending Programme'. AN extremely bearish position.

So, we now have a short to medium term NZD weak bias, look to pair it with currencies as they show strength.

 


 

Learn more about HYCM

 

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.

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