Discussing RBNZ interest rate decision and its impact on NZDUSD

NZDUSD has been rallying significantly this month after setting a low at 0.7740, and waiting for some key events like the RBNZ interest rate decision for any further direction. Reserve Bank of New Zealand (RBNZ) Interest rate decision is scheduled in the upcoming Asian session. Central bank is expected to keep the OCR rate unchanged at 2.5%. RBNZ has not changed the interest rate in last two years as shown below, and is likely to raise the rates may be in early 2014.

Investors would be focusing mainly on the economic outlook from the central bank. In the last several meetings, RBNZ Governor Graeme Wheeler has talked down the currency, showed concerns regarding the overvaluation, and spoke about the intervention from time to time. Moreover, in the last meeting, RBNZ imposed restrictions on LVR (loan to value ratios) for house lending, which caused NZDUSD to move down. The quarterly Monetary Policy Statement will also be released this time, which will contain all the updated forecasts. One of the most important things to look out would be RBNZ’s assessment on the house price inflation as it has been one of the major concerns of the central bank. I personally do not think the policy statement to be hawkish as it may cause the pair to gain momentum to the upside. Mostly likely they will again talk down the currency if NZDUSD continues to trade above 0.8000.

Looking into the technical, there is a major down move trend line on the daily as shown below which comes at around 0.8080. There are also series of resistances around the same level as plotted below, including the 38.2% retracement of the last major drop. However, pair is currently trading above 100 and 55 daily moving average, which is quite bullish in short to medium term, but can be broken easily with dovish RBNZ.

There is an up-move trend line on the 4 hour chart and a support at around 0.8010. If the pair manages to break and close below this level, then the pair can move down to the next support of 0.7920, which marks 23.6% retracement. It is also possible that pair breaks this trend line well before the rate decision and continues to move lower after the event as well. Alternatively, if the pair continues to move higher, and breaks the daily descending trend line, then 200 daily moving average at around 0.8150 would be the next hurdle for NZDUSD.

I would not suggest to buy this pair at the range highs, and would only look to sell rallies with proper bearish signs on the daily and 4 hour chart.
So, trade carefully and do not try to trade the false breaks.

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