RBNZ Cuts the OCR to 2.50 Percent

On April 29, the RBNZ cuts the official cash rate (OCR) by 50 basis points to 2.50 percent. The decision was in line with average estimates. The following charts show reactions from the New Zealand dollar.

Profit from the RBNZ Rate Reduction

On Jan 28, the Reserve Bank of New Zealand (RBNZ) cut the cash rate by 1.5 percent to 3.5 percent. It was 0.5 percent more than average estimates. I made 84 pips of profit by selling nzdjpy after the FOMC announcement and less than 30 minutes before the RBNZ rate decision (I closed it about 15 minutes after the announcement). I made also profit from selling audusd but the position closed before the announcement.

How NZ Dollar Reacted to a Rate Cut

The chance of a rate cut was about 50-50 though the final decision, reducing the interest rate by 0.25 percent, interpreted as a surprise. Consensus in economic calendars was for no change, but in one hour to the decision, I searched related news in Bloomberg and I found a useful article reflecting the possibility of a rate cut as soon as this meeting.

The statement shows that further rate cuts are to come; "Provided that the outlook for inflation continues to improve and there is no excessive exchange-rate depreciation, we would expect to lower rates further", RBNZ's Alan Bollard said.

However, the first reaction was far less than what I expected from such event. It may be because that the current 8.0 percent interest rate is still attractive enough to limit the negative effects.

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.