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

Early Wednesday at 02:00 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 fresh covid woes and challenges to growth, the RBNZ policymakers are likely bracing for a fourth rate hike in 2022, worth 50 basis points (bps) to 2.50%.

Although such a rate hike is already priced-in, recent geopolitical tensions surrounding Russia join the optimists’ calls 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.

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

The RBNZ is widely expected to hike the OCR 50bp for a third time today, taking the OCR to 2.5%. We expect a very hawkish tone to be maintained, setting up another 50bp hike in August. There has been no meaningful decline in inflation indicators since the May MPS, though downside growth risks continue to accumulate on the back of the weak housing market and consumer confidence – and now a COVID resurgence.

On the same line, analysts at Westpac said,

We expect the RBNZ will raise the Official Cash Rate by another 50 basis points to 2.50%, in line with consensus forecasts and market pricing. Recent developments have been mixed for the monetary policy outlook. Near–term inflation is still running hot, but the risks of a global slowdown have increased and early signs of a cooling in domestic activity have started to emerge. For now, the RBNZ will need to carry through with the interest rate hikes it has signaled, or risk undoing its good work so far on bringing inflation pressures under control. Looking further ahead, the evidence for a softening in activity is more anecdotal than definitive at this stage. However, at some point in the coming months it will be appropriate to signal that the end of the tightening cycle is near.

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

Wednesday’s RBNZ announcement could rescue NZD bulls from over two-year lows, should the bank stick to its hawkish guidance on the interest rates. In such a case, NZD/USD could rebound towards the 0.6200 level. A recovery in risk sentiment combined with a broad US dollar retreat is critical to aiding the pullback in the currency pair.

How could it affect NZD/USD?

NZD/USD reverses the previous day’s corrective pullback from a two-year low as it drops to 0.6120 ahead of the RBNZ announcements. The Kiwi pair’s recent losses could be linked to the market’s cautious mood ahead of the RBNZ and the US Consumer Price Index (CPI) for June. Also exerting downside pressure on the quote could be the recently announced downbeat US economic projections from the International Monetary Fund (IMF). Furthermore, an increase in Shanghai’s covid numbers inside the quarantine area also exerts downside pressure on the quote.

That said, the RBNZ rate hike worth 50 bps is widely discussed as the NZD/USD remains pressured around 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 rate statement hints at a further increase in the Official Cash Rate (OCR).

Hence, NZD/USD prices may witness a knee-jerk rebound on 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, the oscillators are less favorable to the NZD/USD bears. However, downward sloping support lines from June 22 and January 27 coincide at 0.6025 to make it the key support. Alternatively, the 10-DMA level surrounding 0.6170 precedes a three-week-old resistance line, close to 0.6180 at the latest, to restrict short-term NZD/USD upside.

Keynotes

NZD/USD retreats towards 0.6100 ahead of RBNZ Interest Rate Decision, US CPI

Reserve Bank of New Zealand Preview: Hitting the repeat button despite hard-landing fears

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.