Trading Plan For RBNZ Rate Decision 06/09/10

RBNZ (Reserve Bank of New Zealand) will be releasing its interest rate decision today and it is widely expected that Gov. Bollard will hike rates today from the current level of 2.50% to 2.75%; here is the forecast:

 5:00pm (NY Time)  RBNZ Rate Decision   Forecast 2.75%    Previous 2.50%
ACTION: NZD/USD        BUY 3.00%     SELL 2.50%             

According to analysts, RBNZ will be following RBA’s (Reserve Bank of Australia) and BOC’s (Bank of Canada) examples and start its rate tightening policy in today’s meeting.  Out of 15 analysts surveyed by Bloomberg, 13 have forecasted a hike of 25 basis point and 2 remained at unchanged…

Let me remind everyone that during the last rate decision in April, NZIER (New Zealand Institute Of Economic Research) stated that there was no need for RBNZ to raise interest rates before September of 2010, and according to the same article, New Zealand’s economy will only grow a modest 3% this year, making a pre-emptive rate hike completely unnecesary…

However, inflation is a very tricky thing, and central banks such as RBNZ usually acts ahead of the curve because once the economy feels the pinch of inflation, playing catch-ups with 50 basis points hikes may send out the wrong message and hurt the competiveness of the NZD.

With China starting to control its economic growth and the debt crisis in Europe, RBNZ does have good reasons to take a wait-and-see stance, but since this rate hike has been widely publicized by Gov. Bollard himself months ago, the possibility of the rate hike outweighs.

The plan is to take a BUY trade if we get a 3.00% release, and to SELL if we get an unchanged release (2.50%).  If we get as expected release at 2.75%, market could stall, or reverse on a buy on rumor/sell on news sentiment, which depending on the price action before this release, favors a reversal…  Mostly likely the best course of action is to stay out if the release is at 2.75%.

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