How Not to Treat Monetary Policy


These days, changing the goal because you can’t achieve it is definitely not the answer to the ineffective nature of modern monetary policy.

You are not allowed to move the target. You may as well be shooting bubbles!

RBNZ Governor Graeme Wheeler, speaking about monetary policy challenges in turbulent times in Dunedin today, summed up the matter in a perfect way:

“There is nothing sacrosanct about what particular inflation band or target should be adopted as a measure of price stability. However, changing a target when times become tougher reduces the incentives on central banks to achieve earlier agreed goals.

“It could damage the central bank’s credibility – particularly if a perception develops that the central bank will continually seek to respecify goals.”

Yet more common sense from across the ditch, while in an Australian parliament lacking a substantial majority, smaller parties, who are low on substance but high on rhetoric, receive the airtime.

Jacob Greber’s article on the topic in today’s Australian Financial Review is worth the read (Google News search the headline) before we head to the charts.

NZD/USD daily

NZD/USD daily

Wheeler’s speech actually had a little bit in it for both the bulls and the bears. He signalled further rate cuts, but not at an unstabilizing, rapid pace that maybe the market has come to expect from an at times erratic RBNZ.

The initial bullish spike in Kiwi has already all but retraced after hitting higher time frame resistance, keeping the level in play.

AUD/NZD daily

AUD/NZD daily

Aussie/Kiwi saw a similar spike, hovering around the major support/resistance level that price had been hopping between for twelve or so months. This one is now getting a little bit too chopped up now that the fundamentals are getting involved, but it’s still worth highlighting on one of our most traded currency crosses.

At least in the southern hemisphere, common sense it seems is prevailing. Now it’s over to you America. Bring on Jackson Hole!

This Tuesday

NZD RBNZ Gov Wheeler Speaks

JPY BOJ Gov Kuroda Speaks

Trade Forex with ECN broker, Vantage FX.

This is a guest post originally appeared on Vantage FX. Reposted with permission.

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