Early Wednesday at 01:00 GMT market sees the key monetary policy decision by the Reserve Bank of New Zealand (RBNZ) amid hopes of another hawkish play by the New Zealand central bank.
RBNZ is up for fueling the market moves with its 10th consecutive rate hike, expectedly worth 0.50%, during early Wednesday. The Interest Rate Decision will be accompanied by the updated economic forecasts in the RBNZ Rate Statement, up for publishing at 01:00 GMT, whereas a press conference with RBNZ Governor Adrian Orr will follow at 02:00 GMT.
The same could push the New Zealand central bank towards announcing 50 basis points (bps) increase to the benchmark rates, from 4.25% to 4.75%.
It’s worth noting that the RBNZ paused its five 50bp rate hike trajectory with a whopping 0.75% increase in the benchmark rate during November 2022.
Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,
We expect a 50bp hike. On balance, local data since the November MPS have pointed towards inflation pressures not being quite as bad as the RBNZ assumed. But the war on inflation is far from won.
On the same line, analysts at Westpac said,
In response to a still intense inflation outlook, the RBNZ is widely expected to deliver a 50bp rate hike to 4.75%, while their forecast for the peak OCR may be lowered slightly. Market pricing is a little short of 50bp for today, perhaps reflecting the cyclone impact on spending and confidence. Markets price the OCR to peak around 5.4%.
On the same line, FXStreet’s Dhwani Mehta said,
Any reaction to the RBNZ policy announcement could be soon reversed, as the dust settles and investors reposition ahead of the Minutes of the US Federal Reserve (Fed) February meeting.
How could it affect NZD/USD?
NZD/USD stays defensive above 0.6200, mildly bid around the seven-week low as the 200-DMA defends Kiwi pair buyers even as the broad US Dollar strength, backed by upbeat US data, weigh on prices. It should be noted that the quote’s latest corrective bounce could be linked to the market’s preparations for the Federal Open Market Committee’s (FOMC) Monetary Policy Meeting Minutes.
Earlier in the week, the RBNZ Shadow board backed the market expectations of witnessing a 0.50% rate hike while the New Zealand Treasury signaled the need for RBNZ to hold the interest rates “higher for longer” due to the Cyclone reconstruction.
Given the clear early signals of witnessing a 0.50% rate hike, the NZD/USD appears well-set to consolidate the latest losses around the seven-week low. However, a negative surprise due to the natural calamity at home won’t hesitate to drown the Kiwi pair.
Apart from the interest rates, the economic forecasts and language of the RBNZ Rate Statement will also be the key for the NZD/USD pair traders to watch. That said, the bleak economic outlook and early signals for peak rates might tease the sellers despite the 0.50% rate hike announcement.
Technically, the Kiwi pair rests on the 200-DMA support surrounding 0.6180, pressured down by a three-week-old resistance line, close to 0.6285-90. However, the RSI (14) line is nearly oversold and hence the downside room appears limited.
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 explanations of their decision on interest rates and commentary about the economic conditions that influenced their decision.