My relatively extensive “coverage” of New Zealand Dollar this week was because of policy meeting by Reserve Bank of New Zealand took place yesterday. Considering that I also had a trade in NZD-CHF form last post, I decided to stay up for a while and wait for the announcement. Not to trade it, but to see the reaction first hand. After all, RBNZ had expresses “concern” with the strength of NZD, so I wanted to see just how sincere they were. As it turned out, not very.

Central bank left the official cash rate unchanged at 2.5%, in spite of some prior vague threats of cutting it. Then,  Governor Bollard simply threw in the towel on the NZD issue, when he said that cutting rates in other countries, like Switzerland, Canada and South Africa, did little to weaken those currencies. “It wouldn’t have made any difference” for New Zealand Dollar. No other mention of intervention, quantitative easing or anything of this sort was made. RBNZ predicted that current level of rates will likely remain unchanged until later part of 2010.

Very handy PDF of policy statement was released. It is surprisingly good read and I recommend it. Here is the link
http://www.rbnz.govt.nz/monpol/statements/sep09.pdf
It contains nice analysis of currency markets, including table showing NZD appreciating the most among other major currencies and some reasons behind it (as they see it). Farther down the document there is another paragraph, where they comment on NZD again. This time they expect it to stay at elevated level until late 2010. I also liked honesty of the Governor, when he admitted that RBNZ didn’t have a high degree of precision predicting long term trends of currency exchange rates. Or short term moves, for that matter.

If central bankers can’t predict what currencies are going to do, how can traders? I couldn’t wrap my head around what those guys have to comprehend, and must resolve to much simpler tools. For me it means charts, in case it is not clear to anybody. Like the one showing Kiwi-Swissy trade.

As soon as the news was delivered, NZD got weaker but reversed immediately. Price came within few pips of my target, but just short. I had another chance of  getting just very recently. Price made another move down and once again came just short of the objective. This time I closed the trade at the sign of turning. Exit was at .7222 or 38 pips profit.

RBNZ was not the only central bank having a policy meeting today. Bank of England also made interest rate decision. No surprises here either- everything is left on hold, including asset purchase scheme that created controversy before.

Markets liked that news, for a change. Pound rallied strongly. GBP-CHF is nearing a resistance at about 1.7315. If this is broken, I want to be long with an objective of 1.7430 or so. So far it has been a straight up, sharp move. Price can easily pull back under the buy point. Hourly chart doesn’t present good stop points. Might have to use 15 M chart for that. Hopefully it will not be needed.

Mike K.