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

RBNZ overview

The RBNZ is expected to leave the Official Cash Rate (OCR) at 1.75% at its policy meeting today, however, this meeting will garner far more interest than others in recent months due to the progress the economy has been making recently. We have had a series of positive outcomes starting with NZ GDP whereby Q2 was +1%/q compared with RBNZ +0.5%/q. We then had that CPI for Q3 that was +0.9%/q and +1.9%/y compared with RBNZ +1.4%/y. More recently, this week, we go the  Unemployment rate for Q3 that was a very impressive 3.9% compared with RBNZ 4.4% which sent the bird to the moon and the highest levels since August this year and through the 123.6% Fibo extensions of the Sep high - October lows range. 

For today's meeting, analysts at TD Securities outlined some key comments and potential tweaks to look out for in the statement: 

Checklist for the Monetary Policy Statement:

• REPEAT: “The direction of our next OCR move could be up or down.” Removing this will be too hawkish too soon and NZD and swap rates will jump beyond comfort levels for the RBNZ.
• REPEAT: “intends to keep the OCR at an expansionary level for a considerable period.” Should drop the reference to "and into 2020" given the string of upside surprises to growth, labour market strength and inflation.
• TWEAK: OCR increase brought forward by six months to reflect the higher inflation profile. Not doing so erodes RBNZ credibility.
• REPEAT: From the September OCR Review, where core inflation and GDP were stronger than expected but "downside risks remain". DROP: the August downside growth scenario where the OCR could be cut by up to -100bp if growth disappoints. Growth has not only not disappointed but Q3 looks like another strong print (our tracking is for another +1.2%/q for GDP(E)).
• REPEAT: the upside inflation scenario where the OCR could be +50bp higher than the base case.

How could the RBNZ affect NZD/USD? 

NZD popped via the strong employment report and a further rally on today's meeting could see the bird take flight through the 0.68 handle and onto a 161.8% extension of the said range to the 0.6870s. For the downside, a dovish scenario is not expected from the MPS publication per se, by analysts at TD Securities, but RBNZ Governor Orr's press conference. "This begins an hour after the release of the MPS. He is unlikely to welcome an outsized hawkish market reaction, and could choose to "talk down" rates and FX, adding to volatility on the day." 0.6700 could come under pressure and open risk back to 0.6610.

Key notes:

• RBNZ likely to leave the OCR on hold at 1.75% - Westpac
• RBNZ: Monetary Policy Statement to take centre stage this week - ANZ

About the RBNZ interest decision and 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.