- The Reserve Bank of New Zealand will keep the official cash rate at 5.50% in November.
- RBNZ Governor Orr’s press conference and updated macroeconomic forecasts could cause volatility.
- The New Zealand Dollar is more likely to be affected by Orr’s words than by the RBNZ’s decision.
Following Wednesday’s policy meeting, the Reserve Bank of New Zealand (RBNZ) will keep the Official Cash Rate (OCR) unchanged at 5.50%. The New Zealand central bank is likely to hold interest rates for the fifth consecutive meeting, retaining its hawkish bias.
The New Zealand Dollar (NZD) is subject to high volatility should the RBNZ offer any surprises in its monetary policy statement.
What to expect from the RBNZ interest rate decision?
With the Reserve Bank of New Zealand’s interest rate decision already made, markets are expected to focus on the central bank’s updated economic forecasts and Governor Adrian Orr’s press conference. The decision will be announced at 01:00 GMT on Wednesday, followed by the press conference at 02:00 GMT.
In the minutes of its October monetary policy meeting, the RBNZ stated that “interest rates are limiting economic activity and reducing inflationary pressure as required.” Meanwhile, the policy statement said the “Committee agreed that interest rates may need to remain at a restrictive level for a more sustained period of time.”
Following the October monetary policy announcement, official data from Statistics New Zealand (Stats NZ) showed that the Consumer Price Index (CPI) in the 12 months to September rose 5.6%, below expectations of 5.9 % and the previous quarter’s reading of 6.0%. On a quarterly basis, New Zealand inflation rose to 1.8%, but fell short of expectations of 2.0%.
The latest labor market report showed that the New Zealand unemployment rate rose to 3.9% in the September quarter, up from 3.6% in the previous quarter,
Cooling inflation and easing labor market conditions justify the central bank’s potential business-as-usual stance, although it remains to be seen whether the RBNZ maintains the hawkish rhetoric as the latest data adds signs that the bank central bank has reached the end of its hardening cycle.
On Monday, the “Shadow Board” of the New Zealand Institute of Economic Research (NZIER) recommended keeping the cash rate at 5.50%. According to the Shadow Board, “some members considered that recent inflation and labor market developments, together with waves of mortgage refinancing, provide the Reserve Bank with some comfort that OCR increases to date would be enough to contain inflation back towards its target inflation band of 1% to 3%.”
Markets expect no change to the RBNZ OCR path in their updated forecasts. The October Monetary Policy Review (MPR) showed the RBNZ continued to forecast the OCR to remain at 5.50%, with around a 40% chance of a further 25 basis point rise to 5.75% in 2024. The hint indicated that the central bank does not expect to cut until the first half of 2025.
However, Bloomberg’s “World Interest Rate Probabilities (WIRP)” suggests a 5.0% chance of a hike on February 28. From then on, everything revolves around rate reductions, and the first of them is fully planned for August 14,” BBH analysts point out.
How will the RBNZ rate decision affect the New Zealand Dollar?
If the RBNZ forecasts stoke any premature expectations of interest rate cuts in the second half of 2024, while suggesting the Bank has ended its rate hike cycle, the New Zealand Dollar is likely to come under intense pressure. seller against the US Dollar.
At the time of writing, the NZD/USD pair is at three-month all-time highs above 0.6100. In case of a moderate RBNZ pause, the Kiwi pair could see a sharp downward correction towards the 0.6000 level.
On the other hand, if RBNZ Governor Orr manages to convince markets that a further interest rate hike is on the way, the ongoing bullish trend in the NZD/USD pair could gain further strength, with buyers targeting at the 0.6200 level.
The New Zealand dollar, however, could remain supported by a potential hawkish surprise, should New Zealand’s new coalition government abandon the central bank’s dual mandate, focusing solely on price stability.
Dhwani Mehta, Senior Analyst at FXStreet, offers a brief technical outlook for New Zealand Dollar trading on RBNZ policy announcements: “NZD/USD pair appears to extend the uptrend, having closed above the critical moving average on Monday 200-day SMA at 0.6090. The 14-day Relative Strength Index (RSI) is below the overbought zone, although comfortably above the midline, suggesting there is room for further upside. “
“The next bullish hurdle is seen at the round 0.6200 level, above which the July 27 high of 0.6274 will come into play. NZD buyers will then target the 0.6300 figure. On the opposite side, strong selling “A massive break below the 200-day SMA could endanger the 0.6000 level. Further down, the confluence of the Nov 22 low and the 100-day SMA near 0.5995 could emerge as powerful support for NZD/USD,” Dhwani adds.
New Zealand RBNZ Monetary Policy Statement
At each of the seven meetings of the Reserve Bank of New Zealand (RBNZ), the RBNZ Monetary Policy Committee (MPC) publishes a post-meeting statement explaining its policy decision. The statement may influence the volatility of the New Zealand Dollar (NZD) and determine a positive or negative trend in the short term. A bullish stance is considered bullish for the NZD, while a moderate stance is considered bearish.
Why it is important for operators
The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, where it announces its interest rate decision and the economic assessments that influenced its decision. The central bank offers clues about the economic outlook and future policy path, which are highly relevant to the valuation of the NZD. Positive economic developments and optimistic outlook could lead the RBNZ to tighten policy by raising interest rates, which tends to be bullish for the NZD. Monetary policy announcements are usually followed by a press conference by Governor Adrian Orr.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
