Top 5 Events: May RBNZ Meeting Preview & NZDUSD Price Forecast

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Talking Points:

– The Reserve Bank of New Zealand meets on Wednesday, May 8 at 02:00 GMT; rates markets are pricing in a 51% chance of a 25-bps rate cut.

NZDUSD prices reached fresh 2019 lows at the end of April, breaking the January 3 flash crash low in the process.

Retail traders are currently net-long NZDUSD and have remained net-long since April 2; during that timeframe, NZDUSD prices fell by -3%.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.


The Reserve Bank of New Zealand’s overnight cash rate peaked at 3.50% in May 2015 and has been on a slow erosion over since; the most recent 25-bps rate cut was at the November 2016 meeting. Mounting concerns about a soft economy may have reached the tipping point in recent weeks, finally provoking the Reserve Bank of New Zealand into its first rate move in two and a half years.

The Q1’19 New Zealand GDP report showed that growth was weaker than anticipated, coming in at 2.3% annualized versus 2.5% expected, from 2.6% in Q4’18. Meanwhile, the Q1’19 New Zealand inflation report produced a similar disappointment, registering 1.5% versus 1.7% expected, from 1.9% (y/y). Overall, the Citi Economic Surprise Index for New Zealand, a gauge of economic data momentum, has fallen from -1.8 to -11.2 since the March RBNZ meeting.

Top 5 Events: May RBNZ Meeting Preview & NZDUSD Price Forecast

Since the last RBNZ meeting in March, traders had steadily pulled forward expectations of a 25-bps rate cut into the first half of 2019. Prior to the last RBNZ meeting there was a 7% chance of a cut at the May meeting; coming into this week, there was a 51% chance of a 25-bps cut on Wednesday.

But after the Reserve Bank of Australia opted to keep rates on hold rather than go the cut route, traders have taken a different perspective on the RBNZ. In the wake of the RBA’s decision to punt its rate decision until June, traders are leaning into the same fate for the RBNZ: overnight index swaps now foresee a 36% chance of a rate cut at the May RBNZ meeting.


NZDUSD Technical Analysis: Daily Timeframe (April 2018 to May 2019) (Chart 1)

Top 5 Events: May RBNZ Meeting Preview & NZDUSD Price Forecast

The near-term price forecast for NZDUSD remains bearish as technical studies point to a weak momentum environment. Price remains below its daily 8-, 13-, and 21-EMA envelope, while both daily MACD and Slow Stochastics point lower in bearish territory.

After breaking the early-2019 flash crash low set on January 3 at 0.6587, NZDUSD prices established a fresh 2019 low at 0.6580 in the final week of trading in April. As such, a move below the April low of 0.6580 would likely trigger an effort to return back to the November 1, 2018 low at 0.6514. The near-term bearish price forecast for NZDUSD would be negated were price to return above the April 30 high at 0.6685.

IG Client Sentiment Index: NZDUSD Price Forecast (May 7, 2019) (Chart 2)

Top 5 Events: May RBNZ Meeting Preview & NZDUSD Price Forecast

NZDUSD: Retail trader data shows 71.9% of traders are net-long with the ratio of traders long to short at 2.56 to 1. In fact, traders have remained net-long since April 2 when NZDUSD traded near 0.68032; price has moved 3.0% lower since then. The number of traders net-long is 8.0% higher than yesterday and 22.4% higher from last week, while the number of traders net-short is 8.4% lower than yesterday and 23.9% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger NZDUSD-bearish contrarian trading bias.


Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

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