- The Reserve Bank of New Zealand is expected to cut interest rates by 50 basis points to 4.75% on Wednesday.
- New Zealand’s worsening economic downturn and optimism about inflation highlight bets on a big RBNZ rate cut.
- The RBNZ’s policy announcements are set to inject intense volatility into the New Zealand Dollar.
The Reserve Bank of New Zealand (RBNZ) is expected to follow in the footsteps of the US Federal Reserve (Fed) when it announces its interest rate decision on Wednesday at 01:00 GMT.
New Zealand’s central bank will not publish quarterly economic projections alongside its policy statement. There will be no press conference from Governor Adrian Orr to follow.
What to expect from the RBNZ interest rate decision?
The RBNZ is widely expected to reduce the Official Cash Rate (OCR) by 50 basis points (bps) from 5.25% to 4.75% following its October policy meeting. The central bank made a surprise 25 bps rate cut in August.
Since then there has been no new macroeconomic news, except for New Zealand’s second quarter Gross Domestic Product (GDP) report. Data released by Statistics New Zealand on September 19 showed GDP declined 0.2% in the second quarter from the previous quarter’s revised 0.1% growth. Economists expected a 0.4% contraction in the reporting period, while the RBNZ projected a 0.5% fall.
Despite a smaller-than-expected GDP contraction in the second quarter, the downward trend in inflation and slowing economic activity helps build a case around a potential 50bps cut by the RBNZ this week. However, New Zealand’s persistent non-tradable inflation and a strong resurgence in business confidence could lead the RBNZ to opt for a smaller rate cut in November.
“The latest projections from the RBNZ have headline CPI at 2.3% and non-tradable CPI at 5.1% in the third quarter,” noted FX strategists at ING.
“We see a non-negligible risk that inflation has fallen below the midpoint of the 2% target range, but the non-tradable CPI should remain more persistent. Consequently, this 50 bps cut could be a one-time move, with the RBNZ returning to gradual reductions of 25 bps towards a terminal rate close to 3%,” they added.
How will the RBNZ rate decision impact the New Zealand Dollar?
The New Zealand Dollar (NZD) is near its lowest level in a month against the US Dollar (USD), near 0.6100, as markets fully price in a 50 bps rate cut from the RBNZ on Wednesday. Meanwhile, the USD remains strong across the board as strong September Nonfarm Payrolls (NFP) data led markets to rule out a big Fed rate cut in November.
Ahead of the RBNZ’s policy announcements, the NZD/USD pair appears to be at two-way risk as its fate depends on the central bank’s communication on the size and pace of future rate cuts.
If the central bank cuts the OCR by the expected 50 bps but surprises with a cautious tone in its policy statement, rejecting expectations of further large rate cuts, the NZD is likely to find fresh demand. In that case, NZD/USD could stage a strong comeback towards the 0.6300 level. A surprise 25 bps rate cut by the RBNZ could also revive NZD buyers.
On the other hand, NZD/USD could see a fresh downtrend towards 0.6000 if the RBNZ acknowledges progress on disinflation while expressing concerns about economic pain, leaving the door open for further large rate cuts.
Dhwani Mehta, Senior Analyst at FXStreet, offers a brief technical outlook for trading the New Zealand Dollar on RBNZ policy announcements: “The NZD/USD pair is challenging the critical 200-day SMA at 0.6099, as it The 14-day Relative Strength Index (RSI) remains deep in bearish territory.”
“If buyers manage to defend the key 200-day SMA, a recovery towards the 21-day SMA at 0.6226 could begin. Before that, the 50-day SMA at 0.6157 could come into play. Alternatively, a sustained break below The 200-day SMA could push a fresh downtrend towards 0.6000 level, below which the August 16 low at 0.5978 will be tested,” Dhwani adds.
New Zealand dollar PRICE This month
The table below shows the percentage change of the New Zealand Dollar (NZD) against major currencies this month. New Zealand dollar was the weakest currency against the US dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.37% | 2.18% | 2.84% | 0.89% | 2.78% | 3.77% | 1.06% | |
| EUR | -1.37% | 0.78% | 1.44% | -0.48% | 1.39% | 2.36% | -0.32% | |
| GBP | -2.18% | -0.78% | 0.66% | -1.26% | 0.60% | 1.58% | -1.08% | |
| JPY | -2.84% | -1.44% | -0.66% | -1.89% | -0.05% | 0.91% | -1.72% | |
| CAD | -0.89% | 0.48% | 1.26% | 1.89% | 1.88% | 2.86% | 0.17% | |
| AUD | -2.78% | -1.39% | -0.60% | 0.05% | -1.88% | 0.96% | -1.69% | |
| NZD | -3.77% | -2.36% | -1.58% | -0.91% | -2.86% | -0.96% | -2.61% | |
| CHF | -1.06% | 0.32% | 1.08% | 1.72% | -0.17% | 1.69% | 2.61% |
The heat map shows percentage changes for major currencies. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you choose the New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change shown in the box will represent the NZD (base)/USD (quote).
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. The evolution of the Chinese economy tends to move the Kiwi because China is New Zealand’s largest trading partner. The bad news for the Chinese economy will likely mean fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor moving the NZD is dairy product prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also drive up bond yields, making investors more attractive to invest in the country and thus boosting the NZD. On the contrary, lower interest rates tend to weaken the NZD. The so-called rate differential, or what rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.
The release of macroeconomic data in New Zealand is key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive overall market risks to be low and are optimistic about growth. This usually translates into a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
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.
