Market Analysis


At 2100h UK time tonight the Reserve Bank of New Zealand (RBNZ) will make its latest interest rate announcement and release its Monetary Policy Statement (MPS). Markets are expecting the Official Cash Rate (OCR) to be left unchanged at 1.75 per cent. However given that first quarter New Zealand GDP growth proved to be lower than was predicted by the RBNZ three months ago (a rise of 0.5 per cent quarter-on-quarter (q/q) as opposed to the forecast 0.7 per cent increase) there’s a possibility the RBNZ could tweak its growth forecasts for the New Zealand economy. With unemployment at a low 4.5 per cent but accompanied by only moderate wage growth, inflation remains under control, so there’s no compelling reason on that front for the RBNZ to think the RBNZ might be tempted to talk up rate hike prospects. Indeed perhaps the risk is that the RBNZ downgrades its growth forecasts for the near term. While that might not immediately push back market expectations of an OCR hike in late 2019, it could prove a headwind for the NZD versus the USD (NZDUSD) in an environment where the US Federal Reserve seems likely to increase US rates again next month.

by Neal Kimberley, External Currency Analyst.