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.

RBNZ is expected to announce the seventh back-to-back increase in its benchmark interest rate, from 2.5% to 3.0%, not to forget a fourth straight 50 basis points (bps) rate hike.

Although the rate hike is primarily priced in, the quarterly Monetary Policy Statement and the press conference by RBNZ Governor Adrian Orr make the event crucial for NZD/USD traders, especially when the global inflation fears abate.

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

We are expecting a hawkish tone today as the RBNZ tries to reiterate the battle to bring down surging inflation is far from over. Upside surprises in domestic inflation and wage growth, along with the recent falls in domestic mortgage rates given the Monetary Policy Committee little choice but to send a clear message.

On the same line, analysts at Westpac said,

The RBNZ is widely expected to lift the Official Cash Rate by 50bp from 2.5% to 3.0% and to continue signaling further tightening ahead. There will be plenty to absorb in the quarterly statement, followed by Governor Orr’s press conference an hour later.

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

Wednesday’s RBNZ announcement could fail to offer any reprieve to NZD bulls if the bank delivers the expected 50 bps rate hike but underscores growth concerns and hints at a potential easing in its rate-hike track.  

How could it affect NZD/USD?

NZD/USD remains pressured towards 0.6300 during the three-day downtrend, down 0.15% intraday at 0.6335 by the press time, as Kiwi buyers brace for the 0.50% rate hike amid a sluggish Asian session on Wednesday. The quote’s latest weakness could be linked to the market’s anxiety ahead of the critical RBNZ verdict. The same pay less attention to the recent pullback in the US dollar as the greenback traders prepare for the Federal Open Market Committee (FOMC) meeting minutes.

That said, the RBNZ’s fourth rate hike worth 50 bps is widely discussed and seemed to have been capitalized by the bulls between mid-July and early August. Hence, an increase in the benchmark rate worth the estimations won’t make any significant difference to the Kiwi pair trader until the accompanying rate statements and Governor Orr’s press conference hint at a further increase in the Official Cash Rate (OCR).

Even so, a knee-jerk rise on the 50 bps rate hike can’t be ruled out. On the contrary, a disappointment from the RBNZ, either via a softer rate hike or cautious comments, should be considered heavily negative for the NZD/USD prices. However, it also depends upon the Fed Minutes as to how low the Kiwi pair can fall.

Technically, NZD/USD recently bounced off the 100-DMA support around 0.6320 amid bullish RSI divergence. The recovery moves, however, need validation from a downward sloping resistance line from late April, close to 0.6460 by the press time.

Keynotes

NZD/USD pauses two-day downtrend around 0.6350 with eyes on RBNZ, Fed Minutes

Reserve Bank of New Zealand Preview: Growth fears could temper hawkish rhetoric

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.