Could the RBNZ (Reserve Bank of New Zealand), shock Forex markets with an interest rate adjustment?

Aug 8 • Extras • 2210 Views • Comments Off on Could the RBNZ (Reserve Bank of New Zealand), shock Forex markets with an interest rate adjustment?

On Wednesday August 9th at 21:00 hrs (GMT), the RBNZ will announce its interest rate decision. Thereafter, immediately after the announcement, the governor of the bank, Mr. Wheeler, will discuss the central bank’s decision in a news conference, during which he’ll outline the bank’s position and the overall management of the monetary policy which is within its remit. The expectation, from the economists polled by, for example; Reuters and Bloomberg, is for the rate to be held at 1.75%.

However, as always when central banks’ announce their interest rate decisions, it’s not necessarily the interest rate decision which the market reacts to (even if the rate is held), the press conferences are far more likely to create movement in FX markets if (within the commentary), there’s a significant change in policy. Forward guidance may be delivered, suggesting an adjustment to the interest rate in the short to medium term, or the central bank may change its stance, from hawkish to dovish, or vice versa.

The kiwi (New Zealand dollar) fell versus many of its peers during Monday’s sessions, due to the Q3 inflation expectation coming in below forecast. Looking at the current enviable economic performance of New Zealand, the RBNZ governor is likely to deliver a neutral, dovish and benign statement, suggesting both he and his rate setting committee, are currently satisfied with both their navigation of and influence over the economy.

New Zealand’s most recent data snapshot; key economic facts.

  • Interest rate currently 1.75%
  • CPI currently 1.7%, fallen from 2.1%.
  • Unemployment 4.8%, fallen from 4.9%.
  • GDP (monthly) 0.5%, risen from 0.4%.
  • GDP (annually) 2.5%, fallen from 2.7%.
  • Balance of trade $242m, risen from $74m.
  • Government debt v GDP, 24.6%, a decrease from 25.1%.
  • Composite Markit PMI, 59.3, risen from 54.8.
  • Retail sales (YoY) 4.7%, risen from 3.9%.

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