Early Wednesday at 02:00 GMT market sees the monetary policy decision by the Reserve Bank of New Zealand (RBNZ). New Zealand’s central bank is at the crucial point where it needs to strike a balance between economic optimism at home and the reflation fears. Also adding importance to today’s decision is the latest tapering from the Bank of Canada (BOC) and the Bank of England (BOE).
It should be noted that the latest comments from the RBNZ officials cite downside risk to inflations, contrary to the survey suggesting New Zealand (NZ) inflation expectations keep accelerating in Q2.
Market consensus favors no change in the benchmark interest rate, currently at 0.25%, or the Large Scale Asset Purchases (LSAP) during today’s monetary policy meeting. However, the economic forecast and the way out of easy money, amid rumors of future tightening, will be closely watched for near-term direction.
Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,
The RBNZ is expected to revise up its forecasts for GDP, employment and inflation in today’s Monetary Policy Statement, but at the same time remain cautious about the speed of the economic recovery. No changes are expected in the OCR, nor any changes to the LSAP or FLP programs. What will be important will be the tone and language used by the RBNZ which will provide clues as to when it may become less dovish. We anticipate the RBNZ will need to commence raising rates by August 2022. This in turn will flow into higher mortgage rates which are likely to put downwards pressure on house prices.
Also joining the bears’ league is TD Securities that said,
The RBNZ will table a new set of forecasts in the May MPS. Expect the Bank to revise its unemployment forecasts lower but with no appreciable lift in its inflation forecasts. The Bank is likely to reiterate 'considerable time and patience' is required to meet its objectives to begin hiking. Of more interest is whether the Bank will reintroduce its forecast OCR track.
How could it affect NZD/USD?
NZD/USD eases from intraday top to retest 0.7230 during early Wednesday as the pair traders struggle to justify upbeat market sentiment and cautious mood ahead of the RBNZ. Also contributing to the kiwi pair’s weakness could be the downbeat NZ trade numbers for April, published early in Asia.
Given the mixed sentiment concerning the RBNZ’s next moves, despite broad support for a rate hike in 2021, NZD/USD bulls will keep their eyes on the statements suggesting the monetary policy normalization. Alternatively, any disappointment, either via economic forecasts or comments from RBNZ Press Conference, could quickly break the 0.7200 threshold.
Ahead of the release, FXStreet’s Dhwani Mehta says, “Unless the kiwi central bank surprises with some hawkish hints in the forward guidance and or policy statement, the kiwi pair is likely to remain at the mercy of the US dollar price action and the market mood at the time of the rate announcement.”
Keynotes
NZD/USD defends 0.7200, ignores downbeat NZ trade data ahead of RBNZ
RBNZ Preview: Improving economic performance but same policy
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.