Early Wednesday at 01:00 GMT market sees monetary policy decision by the Reserve Bank of New Zealand (RBNZ). Also increasing the importance of the event is the quarterly release of the RBNZ Rate Statement, to be followed by Governor Adrian Orr’s speech at 02:00 GMT. While the latest fundamentals concerning New Zealand have been upbeat and could push the central bank towards no rate change announcements, coronavirus risks will make the underlying tone of the statement, Governor’s press conference interesting to watch.
Ahead of the event, Westpac shows readiness if the RBNZ surprises with a rate cut,
The obvious strategy now is for the bank to signal that the OCR is most likely to remain on hold at 1%, but that they stand ready to cut the OCR should that be required by the coronavirus situation. If coronavirus quickly blows over like SARS did, then the RBNZ can revert to an on-hold outlook for the OCR at its next communique. Should economic disruptions from coronavirus intensify, the RBNZ may consider cutting the OCR to help offset any negative impact on employment. Markets are 60% priced for a rate cut by June.
On the contrary, analysts at the Australia and New Zealand Banking Group (ANZ) said,
Expectations are for no change in the OCR, but the skittish behavior of the NZD reflects nervousness that the RBNZ might cut on the back of the hit to global growth stemming from the virus, which is starting to overshadow otherwise promising signs of improvement in domestic economic momentum.
How could it affect NZD/USD?
Considering China’s recent influence over New Zealand’s economy, the central bank is bound to accept downside risks to the economy based on the coronavirus outbreak. However, the extent to which it can affect the RBNZ policy, at now and in the future, will be the key to follow. “Market pricing for RBNZ implies a 5% chance of easing on 12 February, with a terminal rate of 0.82% (RBNZ OCR currently at 1.0%),” says Westpac.
Technically, the pair’s latest bounce off 0.6380 fails to speak loudly for its strength unless clearing a 13-day-old falling trend line, at 0.6430 now, which in turn could fuel the quote towards 100-day SMA near 0.6478. Alternatively, the bearish MACD signals confront oversold RSI to highlight 0.6380/75 as near-term key support holding the gate for the pair’s declines to November 2019 low near 0.6315.
NZD/USD on the move to the upside in improved risk sentiment, but RBNZ could clip its wings
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.
About RBNZ monetary policy statement
The New Zealand Reserve Bank publishes its Monetary Policy Statement (MPS) quarterly. Each Monetary Policy Statement must set out: how the Reserve Bank proposes to achieve its targets; how it proposes to formulate and implement monetary policy during the next five years; and how monetary policy has been implemented since the last Monetary Policy Statement.