Kiwi jumps after RBNZ rate cut

Last night we saw exactly what happens when everyone is pointing the same way and the result comes out as expected

The RBNZ cut rates by 0.25bp as expected and the currency shot up. Someone we know got the move spot on

Adam Button in his preview;

"If the RBNZ cuts by 25 bps but isn't particularly dovish and scales back the NZD jawboning, there's a case for an NZD/USD squeeze higher."

There was much analysis that said the RBNZ wasn't as dovish as expected and that also led to the pop. The fact remains that most see them cutting again. The thing with trading expectations is that when everyone has traded in advance there's nowhere else to go and chasing the trade becomes dangerous

The same is happening with USD and the Fed, and GBP and the BOE. The difference with these two is that timing expectations are still further out for the BOE and still pretty undecided between Sep, Dec or Q1 2016 for the Fed. That leaves plenty of room for anticipation price moves. Once the picture on timing becomes clearer, like the RBNZ, the trade is more or less over. It's why we often see a minimal reaction in the currency in the direction of the rate move, in the case of NZD, down on a rate cut, and often the price going the other way

Where are we left with the kiwi now?

We're still within the recent ranges and the trend remains down until it changes. The market is expecting more rate cuts and it's not willing to give up on shorts just yet, so the price may not go higher. On the flipside the market is very short so there may be limited downside

We're going to need to see the 0.6500 low broken properly or we face seeing an end to the trend or a period of consolidation

NZDUSD H4 chart

Above the 0.6650/55 level was where the rally ran out as shorts said "That's as far as we're going to let it go". 150 pips is a fairly tight range so there's scope to see a break either way but it's up to the market to decide which way it will be

Looking at the weekly chart the shorts will probably be happy to sell rallies up towards the 38.2 fib of the April swing at 0.6973 and the longer term traders will be eyeing shorts to the 38.2 fib of the Jul 2014 swing at 0.7390

NZDUSD weekly chart

If the price moves above the 38.2's and gets to the 50.0 fibs, that will be the point that shorts will start getting nervous. Looking the other way the 61.8 fib of the 2009 swing up at 0.6391 is still a target for the shorts that will either break and give them the next big move south, or hold and see them take profit and the buyers returning

So, despite the rate trade potentially offering limited returns, there's still plenty of reasons to trade the pair on the technical and there's plenty of levels for the short and longer term trader