RBNZ Preview: is the NZD too dovish?

April 29, 2015

The NZ dollar reacted very poorly to a speech from RBNZ Assistant Governor McDermott last week. He made some fairly dovish comments about the outlook for interest rates in NZ, stating that the RBNZ isn’t considering hiking interest rates at this stage and weaker demand and inflation would prompt rate-cut talk. He summed it up by saying the inflation outlook requires a period of supportive policy, suggesting the RBNZ is more concerned about underlying low inflation than we previously thought.

However, at prior meetings Governor Wheeler noted that the bank was expecting a period of stability in the official cash rate, even as it predicted that inflation will be around 0% y/y in Q1 and remain below its target of 2% for the next two years. Actual inflation figures for Q1 were slightly below expectations at -0.3% q/q and 0.1% y/y, but are they soft enough for the RBNZ to introduce a dovish bias at tomorrow’s policy meeting (announcement 2100GMT)?

Since the RBBZ’s last meeting in mid-March a lot of economic data has been released. NZ’s economy expanded at its fastest pace in seven years in 2014 at 3.5%, beating an expected growth rate of 3.4% y/y; in Q4 the economy grew a still impressive 0.8% q/q, matching estimates. There have also been some strong trade numbers and mixed confidence figures for NZ, as well as other broadly mixed economic data. The overall effect is that not much has dramatically changed since the RBNZ last meet.

That is, expect for the kiwi. The kiwi has strengthened significantly since the bank’s last meeting on a trade-weighted basis, which isn’t going to go unnoticed by the RBNZ. Yet, this doesn’t mean that the RBNZ will adopt a more dovish tone in its statement tomorrow. It’s more likely that the bank will simply take a more aggressive stance on the ‘overvalued’ kiwi. We expect it to state that the NZ dollar is too high given NZ’s current fundamentals and a softer TWI.

The kiwi’s potential reaction
Last week’s dovish comments from McDermott have weighed heavily on the kiwi, thus if the RBNZ doesn’t reiterate his views in one form or another, we may see a relief rally in the NZD. The technical levels in NZDUSD to watch are 0.7740, 0.7890/0.7900 and then a big psychological resistance zone around 0.8000. On the downside, we’re watching 0.7520, 0.7425 and then 0.7180.

Publication source
FOREX.com information  FOREX.com reviews

February 20, 2017
What is the next target for the UK?
The dramatical event looms large for Pound, which can sweep the British currency off its feet – the official exit from the EU. The Prime Minister Theresa May said that the process can be initiated as close as possible to the EU summit in Brussels, scheduled to take place on 9-10 March...
February 20, 2017
Gold remained around its recent peaks
Despite the overall positive outlook the yellow metal seems to be having problems with its further advance. Inability to move higher may return some selling pressure to markets. Sellers’ profit targets lie at 1230 and 1220 levels...
February 17, 2017
NZD looks to weaken
The New Zealand dollar has found itself under pressure in recent days as the market has started to hedge a little while it waits on the next steps for the US economy...

EXNESS Rating
OANDA Rating
FIBO Group Rating
XM Rating
FX Giants Rating
Larson&Holz IT Ltd Rating

UKoptions Rating
365BinaryOption Rating
OptionRally Rating
Anyoption Rating
EZTrader Rating
Porter Finance Rating