Credit Suisse write that “The rates market is pricing in 27bp for this meeting and just under 50bp by November” and there are even a brave few suggesting that Mr Wheeler may cut rates by 50bps on Thursday.
He certainly has been one of the more erratic Central Bank chiefs in recent times but I think its very unlikely that they act so aggressively this time around.
So with a 25bps cut and a dovish policy statement priced in, where to for the NZD before and after the event?
I think we need to watch the price action very closely in the sessions leading up to Thursday morning’s decision to try and figure out which way hurts the market the most. Worth watching closely in particular will be AUD/NZD, which has been trying to form a major technical base. Its been in a volatile 1.03/1.08 holding range and we are testing the upper edges of this once again.
If the market has indeed fully priced in this dovish policy, then it’s unlikely that the cross will be able to make new highs before the event (in this case, traders are short NZD already and will book profits near important support points).
If the market is badly positioned for the event, then we will probably see one side of the holding range (probably the top as that’s much closer) break before Thursday morning and that will tell us that the market is not comfortably positioned.