June 4, 2008

Playing RBNZ rate decision

Alan Bollard, governor of Reserve Bank of New Zealand, is expected to keep interest rate unchanged; it is when the economy increasingly shows signs of slowing.
At the same time, we see in recent days that almost every economic data from US beats analysts' estimates.
However I am not comfortable in simply selling NZDUSD in less than one hour to interest rate announcement. But what makes it so difficult:

  1. Despite the depreciation of NZD in recent days, it seems that there is more room for NZDUSD to fall, but the problem is that I have no clear idea about how low the currency could fall.
  2. Another source of uncertainty is about the tone of the announcement. Many suggest that Bollard will signal easing but I am not sure.
  3. Finally, there are always buyers for a currency with 8.25 interest rate. In the very short term I am a buyer myself!


So, I prefer to wait until seeing signs of rebound in NZDUSD, then I may go long. I think it is very likely that the interest rate announcement will make a buying opportunity, again in a short term.

No comments:

Post a Comment