Early Wednesday at 01:00 GMT market sees the key monetary policy decision by the Reserve Bank of New Zealand (RBNZ). Having initially turned down the bears, New Zealand’s central bank is anticipated to try a new tool, while also expected to adopt a dovish tone. Though, Governor Adrian Orr and the company isn’t famed for pleasing the bears, which in turn makes today’s event an important one.
Market consensus favors no change in the benchmark interest rate, currently at 0.25%, or the Large Scale Asset Purchases (LSAP) during the monetary policy meeting. However, chatters concerning the Funding for Lending Program (FLP), which offers funds directly to the banks at a rate near the Official Cash Rate (OCR), have recently gained momentum.
Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,
Markets will be closely watching comments about the likelihood of a negative OCR. While it appears that the odds of this being deployed have reduced, we don’t think the RBNZ will rule it out. The RBNZ is likely to acknowledge more positive domestic news, but be reasonably cautious in their interpretation for now. Much will depend on how the data and virus news pans out into the New Year and the effectiveness of the FLP at lowering retail interest rates (the program’s measure of success). One thing is clear: aggressive stimulus doesn’t make sense forever and policy will become more nuanced in time.
Also joining the bears’ league is TD Securities that said,
The NZ economy has held up better than the RBNZ expected – the Q3 u/e rate at 5.3% is well below the 7% f/c in the Aug MPS and house prices are booming, +10% y/y, unlike the RBNZ -7% y/y Aug MPS f/c. As such, the statement is likely to be less dovish. A stronger economy means less RBNZ issuance in turn meaning the Bank will not be able to continue buying at its current pace, cementing the RBNZ introducing a Funding for Lending Program (FLP) at this month's meeting, ~$15b. The program should be similar to the RBA's TFF and is likely to be targeted towards businesses.
How could it affect NZD/USD?
Although the anticipated bearish moves may offer intermediate pullback to the NZD/USD prices, only stark dovish comments from Governor Orr can defy the bulls targeting the year 2019 peak near 0.6945.
On the same line, FXStreet’s Dhwani Mehta says, “a strong dovish language in the policy statement is needed to alter NZD/USD’s bullish course. Although, the risk sentiment at the time of the announcement could also impact the kiwi’s reaction.”
Technically, sustained trading beyond 0.6800 favor NZD/USD bulls to target February 2019 top surrounding 0.6900 before highlighting the 0.6940/45 region, comprising the year 2019 peak, for the buyers.
Keynotes
RBNZ Preview: Prepping up for negative interest rates
NZD/USD: Keeps 0.6800 with eyes on RBNZ moves
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.
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