Early Wednesday at 01:00 GMT market sees the key monetary policy decision by the Reserve Bank of New Zealand (RBNZ). New Zealand’s central bank is at the key stage of the economic cycle where the recovery moves from the coronavirus (COVID-19) need justification but the latest economics haven’t confirmed the bull’s arrival. It should be noted that Governor Adrian Orr and the company aren’t famed for pleasing the bears, which in turn makes today’s event an important one. As a result, the speech from RBNZ’s Orr, starting from 02:00 GMT, will also be crucial to watch.
Market consensus favors no change in the benchmark interest rate, currently at 0.25%, or the Large Scale Asset Purchases (LSAP) during today’s monetary policy meeting. However, the economic forecast and the way out of easy money, amid rumors of future tightening, will be closely watched for near-term direction.
Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,
We expect the RBNZ will acknowledge better data with forecast upgrades, but that they will send a clear message that stimulus will remain in place for a long time, potentially reinstating a flat (actual) OCR forecast and/or installing new forward guidance – perhaps saying the OCR will be on hold until 2023 at the earliest. We see the LSAP limit being left at $100bn today, but the timeframe extended. It would be clearer for the market to switch to communicating purchases to the market in pace terms and that could happen as soon as today too.
Also joining the bears’ league is TD Securities that said,
We expect the RBNZ to keep all policy settings unchanged at the upcoming MPS- OCR at 0.25%. The RBNZ is likely to acknowledge the stronger than anticipated recovery so far, with nearly all NZ data outcomes exceeding RBNZ's and market expectations. However, we expect them to highlight that OCR hikes are not on their radar given that the recovery is patchy and that downside risks remain. Focus to turn to the LSAP program.
How could it affect NZD/USD?
NZD/USD takes rounds to a 34-month low while recently easing to 0.7340 ahead of the much-awaited event by the kiwi traders. Given the RBNZ’s likely cautious optimism, the quote may extend its upward trajectory towards the year 2018 peak. However, the bulls seem tiring off-late and hence any hidden bearish clues, mainly from economic forecasts or the way to exit the easy money flow, can trigger a fresh pullback.
On the same line, FXStreet’s Dhwani Mehta says, “Hints towards a rate hike could spark a correction in NZD/USD.”
Technically, January 2021 peak surrounding 0.7315, followed by the 0.7300 round-figure, will challenge the pullback moves, if any. Alternatively, April 2018 high near the 0.7400 threshold may lure immediate buyers ahead of directing them to the year 2018 peak close to 0.7445.
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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