Early Wednesday at 01:00 GMT market sees the key monetary policy decision by the Reserve Bank of New Zealand (RBNZ).
Having overcome the covid fears and witnessing firmer economics at home, RBNZ policymakers brace for a rate hike on the crucial day, which in turn highlights the event for the NZD/USD pair traders. Also important are the economic projections and Governor Adrian Orr’s speech to watch.
After 25 basis points (bps) of a rate hike in October, market consensus suggests another 0.25% hike in the benchmark interest rate, currently at 0.50%, but no major adjustments to the Large Scale Asset Purchases (LSAP) during today’s monetary policy meeting. The forward guidance, however, will be the key even as some on the floor expect aggressive tightening measures.
Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,
Signalling aggressive intent via the OCR track today would in our view be a better way to maintain control of the narrative (and the yield curve) than a 50bp hit.
Also joining the bull’s league is Westpac that said,
Westpac anticipates a follow-up 25bp increase in the RBNZ’s official cash rate to 0.75% at the November meeting (noon Syd/10 am Sing). A 50bp hike is a clear risk, reflected in market pricing of around 0.83%. There will also be close attention on the accompanying quarterly statement including the interest rate and inflation projections.
How could it affect NZD/USD?
NZD/USD holds onto the previous day’s corrective pullback from a six-week low, picking up bids around 0.6955, during the early Asian session on Wednesday. That said, a lack of major catalysts and preparations for the RBNZ rate hike, coupled with the US Dollar Index (DXY) consolidation around a 16-month high, helps the Kiwi pair rebound of late.
Given the 25 bps rate hike is a well-known and priced action from the RBNZ policymakers, the NZD/USD prices may fail to extend the latest corrective pullback on either a negative surprise or matching the market forecasts. However, a 0.50% rate lift can help the pair buyers to consolidate heavy losses marked in November.
Other than the rate decision, RBNZ Governor Orr’s comments will also be important for near-term NZD/USD direction as hints for faster monetary policy tightening can favor the pair buyers even if the rate hike fails to impress time, if any.
Technically, NZD/USD pair’s bounce off 13-week-old support line, at 0.6930 by the press time, portrayed a Doji candlestick and hints at a further run-up to cross the key resistance, namely 61.8% Fibonacci retracement (Fibo.) of August-October upside, around 0.6960. Alternatively, a daily closing below the stated support line figure of 0.6930 will have another chance to recall the pair buyers, around 78.6% Fibonacci retracement level of 0.6890.
Keynotes
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NZD/USD Price Analysis: Technical observations before the RBNZ
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.