Early Wednesday at 02:00, the GMT market sees the monetary policy decision of the Reserve Bank of New Zealand (RBNZ). The importance of the event is also increased by the quarterly publication of the RBNZ rate declaration, which will be followed by the speech by Governor Adrian Orr at 03:00 GMT.
After announcing 0.75% rate cuts in March, coupled with the signal to leave rates unchanged at 0.25% for at least a year, the RBNZ is not expected to introduce a rate change today. However, the recent upturn in global statistics could help the New Zealand central bank to challenge the broad market consensus on the blinking of pessimistic quarterly economic forecasts. In addition, the widely expected increase in Quantitative Easing (QE) from $ 30 billion to $ 60 billion makes Wednesday’s meeting the key to Kiwi traders. It should also be noted that the RBNZ pulls all cylinders late and may not refrain from suggesting negative rates and / or any other measure to surprise pair exchanges, making the event all the more important.
Before the event, Westpac anticipates a small movement for the markets by saying:
In our preferred scenario of the RBNZ giving a “soft” indication that it intends to maintain the OCR at 0.25% until March 2021, but that it remains open to a decline thereafter, the markets would move little. In the possible scenario where the RBNZ would give a foolproof guarantee that the OCR will remain at 0.25% until March, but indicating that the OCR could become negative after that, short-term swap rates would increase.
Rather, analysts at the Australian and New Zealand (ANZ) banking group said:
We see some risk that the NZD will skyrocket if the RBNZ maintains its previous forecasts that OCR will remain at 0.25% for at least the next 12 months. However, we would call it an instinctive reaction that would likely prove to be short lived. We are also aware that the action of NZD prices in recent weeks has shown that it remains sensitive to the feeling of risk, and given our caution with regard to the apparent disconnection between the economic outlook and asset prices , we still believe that the strength of the NZD depends on borrowing. time.
How could this affect NZD / USD?
There are three criteria, as cited by Ross J Burland of FXStreet, by which the RBNZ could propel the immediate NZD / USD movements. While most expectations suggest that none of them will be used only, the focus on one of them could offer an immediate reaction from the Kiwi pair. Targeting government interest rates obligations is considered to enhance the transparency of the central bank and may have an immediate slightly negative impact. However, falling forecasts and a single mention of negative rates would be enough to drag the Kiwi pair down. In addition, a specific mention of trade conditions with China or any other trading partner will be closely observed and may have an immediate reaction amidst markets currently at risk due to fears of the trade war.
Technically, the NZD / USD is bringing sustained trading below the EMA to 100 days from the end of January, currently around 0.6190, while falling to 0.6070 during the Asian session on Wednesday. In doing so, the pair of kiwis recovers 50% of its decline between January and March. However, a new increase could target 61.8% Fibonacci retracement of said drop in the pair, as well as of the 200-day EMA, near 0.6265 and 0.6325 respectively. Meanwhile, an upward trend line from early April, at 0.5970 now, can limit the pair’s short-term declines.
About the RBNZ decision and interest 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 for the economy and increases interest rates, it is positive, or bullish, for the NZD. The RBNZ rate statement contains explanations of their decision on interest rates and comments on the economic conditions that influenced their decision.
About the RBNZ monetary policy statement
The Reserve Bank of New Zealand issues its Statement of Monetary Policy (MPS) quarterly. Each monetary policy statement should indicate: how the Reserve Bank proposes to achieve its objectives; how it proposes to formulate and implement monetary policy over the next five years; and how monetary policy has been implemented since the last monetary policy statement.