When is the RBNZ and how it could affect NZD/USD?

Early Wednesday at 02:00 GMT market sees monetary policy decision by the Reserve Bank of New Zealand (RBNZ). Also increasing the importance of the event is the quarterly release of the RBNZ Rate Statement, to be followed by Governor Adrian Orr’s speech at 03:00 GMT.

Having announced 0.75% of rate cuts in March, coupled with the signal to leave the rates unchanged at 0.25% for at least a year, the RBNZ isn’t expected to roll out any rate change today. Though, the recent recovery in the headline statistics might help New Zealand’s central bank to defy broad market consensus of flashing pessimistic quarterly economic forecasts. Also, the widely anticipated increase in the Quantitative Easing (QE), from $30 billion to $60 billion, makes the case of Wednesday’s meeting the key for the Kiwi traders. It should also be noted that the RBNZ is firing on all cylinders off-late and might not refrain from suggesting negative rates and/or any other measures to surprise the pair trades, which in turn makes the event even more important.

Ahead of the event, Westpac anticipate a little move for the markets while saying,

In our preferred scenario of the RBNZ giving a “soft” indication that it intends to keep the OCR at 0.25% until March 2021, but that it remains open to a cut after that, markets would move little. In the possible scenario of the RBNZ giving an iron-clad guarantee that the OCR will stay at 0.25% until March, but indicating that the OCR could go negative after that, short-end swap rates would rise.

On the contrary, analysts at the Australia and New Zealand Banking Group (ANZ) said,

We do see some risk that the NZD will spike higher if the RBNZ maintains their earlier guidance that the OCR will remain at 0.25% for at least the next 12 months. However, we’d characterize that as a knee-jerk reaction that would likely prove short-lived. We are also mindful that NZD price action over the past few weeks has shown that it remains sensitive to risk sentiment, and given our caution with regard to the apparent disconnect between the economic outlook and asset prices, we still see NZD strength as being on borrowed time.

How could it affect NZD/USD?

There are three criteria, as cited by Ross J Burland of FXStreet, by which the RBNZ could propel the immediate NZD/USD moves. While most expectations suggest none of them will be used solely, emphasis on any of them could offer immediate reaction by the Kiwi pair. Interest rate targeting on the government bonds is considered to improve the central bank’s transparency and can have a little negative immediate impact. However, downbeat forward guidance and only mention of negative rates would be enough to drag the Kiwi pair down. Additionally, specific mention of trade terms with China or any other trade partners will be observed closely and might have immediate reaction amid the currently risk-averse markets due to the trade war fears.

Technically, NZD/USD carries the sustained trading below 100-day EMA from late-January, currently around 0.6190, while taking rounds to 0.6070 during the Asian session on Wednesday. In doing so, the kiwi pair recovers 50% of its drop between January to March. However, further upside could target 61.8% Fibonacci retracement of the pair’s said fall, as well as 200-day EMA, respectively near 0.6265 and 0.6325. Meanwhile, an upward sloping trend line from early-April, at 0.5970 now, can keep the pair’s near-term declines limited.

Key notes

NZD/USD sits tight ahead of the RBNZ, focus on QE and forward guidance

RBNZ MPS Preview: Expected to keep rates unchanged at 0.25%

About the RBNZ interest rate decision and rate statement

The RBNZ interest rate decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the NZD. The RBNZ rate statement contains the explanations of their decision on interest rates and commentary about the economic conditions that influenced their decision.

About RBNZ monetary policy statement

The New Zealand Reserve Bank publishes its Monetary Policy Statement (MPS) quarterly. Each Monetary Policy Statement must set out: how the Reserve Bank proposes to achieve its targets; how it proposes to formulate and implement monetary policy during the next five years; and how monetary policy has been implemented since the last Monetary Policy Statement.