Why is the RBNZ the smartest and forward central bank is because the RBNZ invented Inflation Targeting in the 90’s and the world followed. Th RBNZ perfected and institutionalized the 10 and 2 year yield spread and the world followed. The RBNZ perfected 200 year old Knut Wicksell strategies and the world followed. Today’s average pip range is 11, the FED from Fed Funds at 37 to 0.50 = 13. What’s 0.37, the daily close everyday since December 17, 2015.
The world’s central banks and exchange rates price from the FED and the FED is not delivering as the ranges and volatility simply disappeared due to FED lock tight in their own interest rates. The Fed’s game is going to end and the result will not be pretty.
The perspective in the 3 raises in 2015 from 2.25 to 3.25 is 3.25 was just above the 20 year average at 2.86. Why the 3rd raise in my estimation was insurance and to raise above the 20 year average. Why the 20 year average is the recommendation of Knut Wicksell to measure the performance of the economy. Above means economics is good to offer simple. The world fell so the RBNZ cut back to 2.25. The location of OCR is not terrible nor does an immediate need exist to cut to 2.00.
The only reason to cut is to lower the exchange rate because the FED went absent and turned inward and without its usual historic assistance. The message from the FED is, we take care of our system while the rest of the world are on their own.
Here’s the RBNZ dilemma. NZD/USD price is literally on the floor long and short term. Yet the criteria to cut is present loud and clear. This particular RBNZ decision is going to be tortuous. An OCR cut will drop NZD/USD but a drop can’t sustain itself at lower levels.
A no cut decision risks NZD/USD higher unless a word is mentioned in the statement regarding future cuts. Like the FED, it only takes a few words to stop prices dead as the central banks forced themselves to become the center of attention and price controllers. Again, monetary policy never before seen and strictly experiments with a devise and adjust strategy as experiments progress.
NZD/USD. Bottom. 0.6951. Achieves by breaks at 0.6969 and 0.6960.
Upper targets 0.6990 and 0.6998.
Range breaks above, 0.7030, 0.7116, 0.7186.
Ranges breaks below, 0.6944, 0.6860, 0.6815. Range breaks are vital because central banks hold prices inside tight ranges.
Vital points above 0.7033, 0.7030, 0.7008, 0.6990, 0.6987, 0.6974. Important most is 0.6987.
Vital points below0.6962, 0.6955, 0.6944, 0.6935.
Brian Twomey, Inside the Currency Market, btwomey.com