Trading volatility: AUD/NZD on RBNZ rate decision

On November 29th, the RBNZ surprised markets by signalling a willingness to raise rates further if necessary. It indicated that stronger-than-expected demand and wage growth were possible factors that could stall progress on taming inflation. Since the last decision, inflation has eased slightly, but still too high for RBNZ Governor Adrian Orr and the Kiwi has been trading at nine-month lows vs AUD. An RBNZ quarterly survey published recently shows 2-year inflation expectations rose to 3.2%. The previous estimate was 3%. The RBNZ target rate is around 2%.

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The Reserve Bank of New Zealand

The Reserve Bank of New Zealand (RBNZ) is having a meeting on Wednesday, February 26th to discuss interest rates. It is expected that they will keep the rates the same at 5.5%, which means they won't change them. This would be the fifth meeting in a row where the rates remain the same.

But here's something interesting: last November, the RBNZ surprised everyone by suggesting that they might raise interest rates if needed. They said that if there is more demand for money and higher wages, it could make it harder to control inflation. So now, we're wondering if the RBNZ will stick to their original plan or change their course.

The New Zealand dollar

Now, let's talk about the NZD, also known as the Kiwi, and the AUD, also known as the Aussie. The Kiwi has been getting stronger compared to the Aussie and is approaching levels we haven't seen since last year. If the RBNZ continues with their plan to potentially raise rates, we might see the Kiwi go above the critical level of 105.60. For example, let's say you're a trader and you've made a bet that the Kiwi will go down at 105.96. You would need to set your stop at a higher level, like 106.50, to protect yourself if the Kiwi goes up instead.

On the other hand, if we see a candle close below 105.60, it could mean that the Kiwi will go down towards the lows we saw in December 2022, at 104.71.

Since the last RBNZ decision, inflation has gone down a bit but is still higher than what the central bank wants. Governor Adrian Orr and the RBNZ's quarterly survey show that people expect inflation to rise to 3.2% in the next two years, which is more than what was expected before.

In conclusion, the RBNZ's decision on interest rates and how it affects the exchange rate between the Kiwi and the Aussie is important for traders who want to make money from changes in the market. It's something to keep an eye on because it could lead to big movements in the market.