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NZDUSD: RBNZ MONPOL DECISION PREVIEW - BOE OR RBA STYLE?

FX:NZDUSD   New Zealand Dollar/U.S. Dollar
RBNZ Monetary Policy Decision:

1. At 22:00GMT the RBNZ are expected to cut their OCR rate to 2% from 2.25% (25bps), further they will release their monpol statement and rate statement then too - with RBNZ Gov             Wheeler speaking 1hr after the release.

2. The are a number of outcomes which are likely to or not to affect the NZD$ market, I will list the combinations below from the very LHS/ Dovish to the more mild and RHS-

Combination of outcomes - assuming the 25bps cut is certain as it is priced 100% into kiwi rates markets:

1. LHS NZD$ response fall to 0.690-0.681 - a 50bps rate cut, dovish statements and offering strong easing biased forward guidance e.g. hinting at further cuts likely, possible QE , other alternative measures being taken if kiwi persists strong - and Gov             Wheeler Reiterates this dovish and highly committed sentiment in his speech..

- BOE and Gov             Carney speech last week is a good illustration of a LHS response, very strong commitment to future easing - despite denying negative rates (housing market sentiment could be the equivalent here)

2. Average NZD$ response fall to 0.710 on the day - a 25bps rate cut, some weak references to future monpol - Wheeler fails to convince the market anything new will be coming

3. RHS NZD$ response = stable at market, then whipsaw higher to 0.73 on the day as investors flock to the highest G10 carry - a 25bps cut, no references to more easing and a theme of conplacency - Wheeler is neutral and perhaps makes mention to the housing environment limiting the RBNZ's hand with future easing.

- RBA's rate cut and SOMP last week and Gov             Stevens speech yesterday is a good example of a RHS rate cut and neutral statement/ Speech - offering no forward guidance on policy, no hits at future easing conventional or otherwise - where we have seen AUD$ move 200pips higher despite the cut

My Opinion on the most likely outcome:

1. Assuming the RBNZ have seen the very bullish AUD reaction to this weeks WEAK rate cut by the RBA/ Stevens (as discussed above) and the RBNZ has also seen the bearish reaction of the market towards BOE/ Carney's reaction to their aggressively dovish statement, speech and policy measures (e.g. cut and 60bn in QE );

- And assuming the RBNZ have seen Kiwi's strength (or USD weakness) and the high levels/ bullish sentiment kiwi is going in at into this monpol decision, which is particularly important now since the RBNZ's emergency economic assessment which stated that they didnt appreciate the strong kiwi$ and would like to bring it down.

- These two factors in mind, plus the fact kiwi data has remained weak and RBNZ at even 2% after a 25bps cut is still the highest yield currency by a massive 50bps in G10 (AUD at 1.5%), so thinking of these 4 elements which are all very dominant calls for dovish/ 50bps cut policy It makes sense to think that the RBNZ will be skewed to delivering a very dovish/ LHS monpol package and a BOE M. Carney like speech by Gov             Wheeler, especially since the House inflation issue has been discussed and macroprudential policies are set to be put in place in september to try and curb this issue where of past this has been a hawkish limitation on the RBNZ's will to be dovish and ease more.

- However, guessing central banks this year has been tricky (BOJ in mind) so there is no certainty, and also there are some worrys over the RBNZs ability to cut 50bps at once - despite the need for it as a 25bps cut leaves a 50bps differential between AUD and NZD which will continue to cause deflationairy pressure and bullish NZD as investors flock to kiwi over the close partner Aussie - given this the RBNZ should be even more inclined to cutting the 50bps so that their ccy isnt used as the "carry ccy". There has been several calls by sell-side houses for a 50bps cut, but as above only time will tell.
Comment: RBNZ Gov Wheeler Live Stream - http://www.rbnz.govt.nz/research-and-publications/webcasts
Popped up. You shorting from the pop or is it invalid?
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Waiting for wheeler.. looks invalid imo aud and kiwi should outperform now.. with a bias for AUD since they didnt offer any forward guidance there should be nothing holding AUD back - RBNZs fwd guidance likely to tame kiwi advances as investors ponder over future policy hence AUD looks like the better long from here with future rate cuts uncertain.. the only real thing Kiwi has in its advantage is 50bps higher OCR which is considerable.. hence why im bullish on both from here.

Wheelers speech now key though.
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AlphaDreams PRO QuantumLogicTrading
We'll see, I'm short the pullback
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