Giles Coghlan LLB, Lth, MA
HYCM
In the last RBNZ meeting on February 22 markets were expecting a 50 bps rate hike. The surge in inflation had shown some signs of topping with January’s print coming in the same aster prior.
The QoQ reading was at 1.4% for January which was at the lower end of the recent range.
However, the RBNZ did not take comfort from this and hiked by 50bps (as expected) and maintained its views for a terminal rate of 5.50%. The committee considered a hike of 75 bps and this was noted as a potential catalyst for sending AUDNZD lower prior to the event. The recent impact of Cyclone Gabrielle was seen as unlikely to impact the medium-term monetary policy outlook although some short-term price spikes were expected as a direct impact in the near term.
Inflation is still too high
The recent pullback in inflation pressures was noted, but the RBNZ still considered core consumer inflation too high. The annual CPI projection was therefore revised higher to 4.2% for March 2024, which was down from the previous of 3.8%.
The takeaway
The RBNZ is not slowing from its interest rate hiking cycle in contrast to the speculation before the meeting. This allowed the NZD to strengthen against the AUD immediately out of the meeting sending the AUDNZD lower.
Going forward inflation data will be key and any big jumps lower in NZD inflation data will allow sudden weakness to creep into the NZD. This would be the best opportunity for short-term traders to look out for. Next NZD inflation data is out on April 19th and Food inflation on March 12th. Another opportunity for NZD weakness would be if the labour market shows signs of loosening (i.e job losses).
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure. *Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM. This material is considered a marketing communication and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. HYCM does not take into account your personal investment objectives or financial situation. HYCM makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of HYCM, a third party, or otherwise. Without the approval of HYCM, reproduction or redistribution of this information isn’t permitted.
Recommended Content
Editors’ Picks
EUR/USD closes in on 1.0800 on broad USD weakness
EUR/USD preserves its bullish momentum and continues to push higher toward 1.0800 on Tuesday. The positive shift witnessed in risk sentiment, as reflected by the positive opening in Wall Street, doesn't allow the US Dollar to find demand and helps the pair keep its footing.
GBP/USD stays in red around mid-1.2100s
GBP/USD continues to trade in negative territory at around 1.2250 on Tuesday despite the broad-based US Dollar weakness. Investors seem to be refraining from betting on Pound Sterling strength ahead of the Fed's and BOE's policy announcements.
Gold falls toward $1,950 as US yields push higher
Gold price extended its daily slide and declined below $1,960. The benchmark 10-year US Treasury bond yield is up nearly 3% on the day above 3.5% on improving risk mood, forcing XAU/USD to stay under bearish pressure ahead of Fed's policy decisions on Wednesday.
If Fed’s money printer goes brrr… will Bitcoin price hit $1 million?
Bitcoin has taken front and center stage after it restarted its 2023 rally in March. This resurgence of buying pressure pushed BTC to nine-month highs.
FX thoughts for the week
Do central banks face a conflict between their inflation mandate and financial stability? The markets are still grappling with this question and confidence in the financial sector has not fully recovered. For now, central banks are responding with a conditional no.