RBNZ surprises markets


Kiwi (NZDUSD) took a battering today as the Reserve Bank of New Zealand (RBNZ) left rates unchanged at 1.75%, together with a statement that did not contain the usual ambivalent guidance on the direction of interest rates, but instead made it abundantly clear that the most likely direction for interest rates would be down. Kiwi has dropped a cent on the day, and while this seems an over-reaction and that a pullback up is probable over the next few days, it will likely be viewed as an opportunity to establish Shorts at a better level. Whilst the markets may have been wrong-footed by the RBNZ statement the New Zealand Dollar is not a basket-case and the good reasons for buying it have not been invalidated. We would expect some buying interest around the 0.6725/50 level, but if this gives way it will take us into unfamiliar territory and will need to be reassessed in the light of developments. In the interim we will wait and watch and see how European markets react to the surprising overnight developments.

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