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

Early Wednesday at 01:00 GMT market sees the key monetary policy decision by the Reserve Bank of New Zealand (RBNZ) amid hopes of another hawkish play by the New Zealand central bank.

Despite the recently mixed data at home, not to forget China’s growth concerns, the RBNZ policymakers are likely bracing for a fourth rate hike, worth 50 basis points (bps) to 2.0%.

Although such a rate-hike is already priced-in, recent geopolitical tensions surrounding North Korea and Russia join some optimists calling for consecutive 50 basis points (bps) of a rate-lifts in the future to make today’s RBNZ Interest Rate Decision interesting for the NZD/USD traders.

Also in the publishing line are the economic projections and Governor Adrian Orr’s speech to watch.

Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,

A 50bp hike to 2% is widely expected, as the RBNZ seeks to get the OCR back to a more neutral level as soon as they can (their estimate at the February MPS was that neutral is around about 2%). Interest rate decisions will likely become more difficult over the second half of the year, especially as evidence of cooling demand starts to mount. As such, we anticipate they will return to more normal 25bp hikes as they assess how previous interest rate hikes are transmitting through the economy.

On the same line, analysts at Westpac said,

Westpac expects the RBNZ to hike the Official Cash Rate by another 50 basis points to 2.0% with a clear signal of further tightening to come. Its OCR forecast will be of particular interest.

Considering the market consensus, FXStreet’s Dhwani Mehta said,

The currency pair could witness a ‘sell the fact’ trading on an expected 50 bps hike with dovish forward guidance, as the RBNZ could be worried about hard-landing risks. In such a case, an extended correction towards May 20 lows of 0.6363 could be in the offing.

The market’s perception at the time of the policy announcement and the US dollar price action ahead of Wednesday’s FOMC Minutes could also affect NZD/USD’s reaction. 

How could it affect NZD/USD?

NZD/USD snaps a four-day uptrend by dropping back to mid-0.6400s ahead of the RBNZ. The Kiwi pair’s latest weakness could be linked to the US dollar’s rebound from the monthly low, as well as to the second-tier threats to the risk appetite.

That said, the RBNZ rate hike worth 50 bps is already priced-in as the NZD/USD prices keep the previous week’s recovery from a two-year low. Hence, an increase in the benchmark rate worth the estimations won’t make any major difference to the Kiwi pair trader until the accompanying economic forecasts portray a rosy picture of the Pacific economy, which is less anticipated due to the recently mixed statistics.

Hence, NZD/USD prices may provide a knee-jerk reaction to the RBNZ’s 50 bps rate hike but any disappointment, either via softer rate action or from the Rate Statement, will have larger repercussions.

Technically, NZD/USD justifies Tuesday’s pin bar with the recent losses, suggesting further pullback towards the 21-DMA support of 0.6394. However, any further downside will make the Kiwi pair vulnerable to testing the 0.6300 threshold. Meanwhile, the monthly high surrounding 0.6570 stays on the bull’s radar ahead of the RBNZ announcements.

Keynotes

NZD/USD Price Analysis: Bulls seeking a higher correction on weekly chart

New Zealand 10-year Treasury yields renew five-week low under 3.45% ahead of RBNZ 

NZD/USD can't catch a break ahead of the RBNZ

Reserve Bank of New Zealand Preview: Will they step up their tightening game?

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.