Reserve Bank of New Zealand (RBNZ)



The Reserve Bank of New Zealand (RBNZ) is the Central Bank of New Zealand.

Therefore, it can issue and modify the supply of the New Zealand Dollar (NZD).

Why is this important?

It’s important because the New Zealand Dollar (NZD) is one of the eight majors (most traded currencies).

As such, you’re likely to find higher quality trades if you add the NZD to your repertoire of currencies.

The New Zealand Dollar (NZD), one of the most traded currencies in the world.

Note: you should be trading all the majors (USD pairs, but also the crosses) when the opportunities arise.

But you would only know of an opportunity if you’re following what’s going on with it and its Central Bank.

However, before we can do that, we should at least know the basics of these Central banks.

And this page is about doing just that for the NZD and the RBNZ.

RBNZ's Mandate

In here we see clearly that inflation is the single most important variable for the Reserve Bank of New Zealand:

“The Reserve Bank manages monetary policy to maintain price stability…”

But what’s that rubbish about sound financial system?

That’s just a way to say the Reserve Bank of New Zealand is a regulator or banks and other financial institutions in New Zealand.

Central Banks regulate some aspects of the financial markets.

This is nothing unusual. Most Central Banks serve as a regulatory entity for the financial sector of their nations, but this has nothing to do with FX, so…

All right. So we have a mandate, what about the Bank’s decision making body?

Thought you would never ask.

Reserve Bank of New Zealand's Structure

The RBNZ is owned by the government of New Zealand.

However, the Bank is given autonomy through legislature. Autonomy to make its own decisions, according to its mandate.

Who makes the interest rate decisions in the RBNZ?

A council, a Board?

No.

The decision is ultimately in the hands of the governor, and only the governor.

WUT?

And you thought the Swiss National Bank was pushing it with a three member Board.

This sounds crazy, and apparently, the way decisions are officially made, may come under review.

The Chosen One...

However, it would be unreasonable to say the governor is alone.

A huge team of employees and expert advisors weight in on monetary policy decisions and discuss the economy fervently before any decision is made.

But, unlike most other Central Banks, where decisions are made through a vote, no such thing occurs at the RBNZ.

Is that bad? Maybe… maybe not so much is the governors are reasonable.

This issue shouldn’t hold the spotlight, but it is important.

Why?

Because if you can get a grip on the governor’s leanings (dovish vs hawkish) you will know what to expect.

Usually, you will have the market’s expectations of policy decisions through news feeds (they do this job for you), so no need to fret.

And in the other hand, any comments by the governor are sure to influence price (so long as the market believes said governor).

Next, let’s talk about how often rate decisions are made.

According to the latest schedule published in the Reserve Bank of New Zealand’s website, rate decisions are made about seven times per year.

It seems as though the schedule was changed recently, although I’m not positive on whether that affected the total number of rate decisions.

FX and the RBNZ

The NZD is mostly a commodity currency due to New Zealand’s commodity-driven economy (lots of agriculture and other natural resources).

New Zealand is also very trade-dependent. Therefore, any big happenings with its major trade partners will likely affect the currency.

In this case, we’re talking China (mostly, but not the only one obviously).

Most attention on the NZD falls during the Asian session since that’s when most relevant news come out (its day in New Zealand).

International trade affects the NZD

So now you know.

The NZD is affected by commodity prices (and hence trade). But like every other currency, it is most affected by monetary policy decisions (interest rates).

And in the case of the RBNZ, decisions are ultimately made by the governor himself.

So pay attention to him!

Aside from that, there isn’t much too different about trading the kiwi (NZD) than with other currencies.

See you later,

Emil Christopher,

The Forex Economist

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