RBNZ: Hawkish hold likely but NZD risks are skewed lower
Today’s RBNZ rate decision could be an nothing-burger or a very big deal. I doubt we’ll see anything in between. There are no updated forecasts, nor a press conference from RBNZ Governor Adrian Orr. Just a statement. The last time that occurred it was one of the shortest updates in history.
Risks for NZD/USD appear skewed to the downside considering the RBNZ surprised hawkish just six weeks ago. With little top-tier data since, and the important Q2 New Zealand inflation report not due until this time next week, a repeat performance comes across as likely. With two-year Kiwi interest rate swaps sitting at multi-month lows, it may encourage the bank to retain a hawkish tone given it flows through to most New Zealand mortgages, and therefore important for monetary policy transmission.
But everyone can see the deterioration in the New Zealand economy. It may not be in recession but it might as well be given the data flow outside of GDP. The only thing standing between the RBNZ and a rate cut is sticky domestic inflation.
With only a one-in-three chance given to a rate cut when the RBNZ next meets in August, should the RBNZ surprise with a conditional easing bias in the final paragraph of today’s statement, it could lead to an abrupt decline for NZD/USD. That’s why risks appear skewed in that direction. It has a track record for delivering unexpected surprises.
When it last met in May, the RBNZ simply said policy “needs to remain restrictive”.
For NZD/USD, support is located at .6105, the 200-day moving average at .6073 and at .6050. On the topside, .6150 and .6218 are the initial levels to watch. Should we see a big deviation following the statement, I expect it to be faded considering the far more important data releases for markets this week is yet to arrive, US CPI on Thursday.
DS
Risks for NZD/USD appear skewed to the downside considering the RBNZ surprised hawkish just six weeks ago. With little top-tier data since, and the important Q2 New Zealand inflation report not due until this time next week, a repeat performance comes across as likely. With two-year Kiwi interest rate swaps sitting at multi-month lows, it may encourage the bank to retain a hawkish tone given it flows through to most New Zealand mortgages, and therefore important for monetary policy transmission.
But everyone can see the deterioration in the New Zealand economy. It may not be in recession but it might as well be given the data flow outside of GDP. The only thing standing between the RBNZ and a rate cut is sticky domestic inflation.
With only a one-in-three chance given to a rate cut when the RBNZ next meets in August, should the RBNZ surprise with a conditional easing bias in the final paragraph of today’s statement, it could lead to an abrupt decline for NZD/USD. That’s why risks appear skewed in that direction. It has a track record for delivering unexpected surprises.
When it last met in May, the RBNZ simply said policy “needs to remain restrictive”.
For NZD/USD, support is located at .6105, the 200-day moving average at .6073 and at .6050. On the topside, .6150 and .6218 are the initial levels to watch. Should we see a big deviation following the statement, I expect it to be faded considering the far more important data releases for markets this week is yet to arrive, US CPI on Thursday.
DS
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