RBNZ In Focus
With NZD/USD having recently risen to 5-month highs, tomorrow’s RBNZ meeting will be closely watched. The bank displayed a largely dovish tone last time around at the May meeting which took markets a little by surprise, given the recent jump in Q1 inflation. However, the bank opted to class the rise in CPI as mostly temporary and projected CPI to rise only gradually, with underlying inflation returning to their 2% target around H2 2019. Similarly, the bank forecasted for rates to remain on hold until 2019 also.
However, the bank opted to class the rise in CPI as mostly temporary and projected CPI to rise only gradually, with underlying inflation returning to their 2% target around H2 2019. Similarly, the bank forecasted for rates to remain on hold until 2019 also.
NZD Rally Defies RBNZ Once Again
The market reaction was initially bearish for NZD, though price quickly rebounded and since the meeting, we’ve seen a roughly 4% increase in New Zealand’s trade-weighted-index. The global environment has supported the resurgent NZD with weaker US bond yields and rising commodity prices combining to keep NZD bid, especially against AUD and CAD which have come under pressure over weaker commodity prices for their key exports.
This month’s meeting will not contain an update of the forecasts, and so provides only limited information, but traders will be keen to see if the bank continues its dovish tone, especially given rising commodity prices.
Mixed Data Since Last Meeting
In terms of data since the last meeting, business and consumer surveys have remained strong, while GDP was slightly below expectations in Q1, with annual growth moving to the low end of its five-year range.Notably, there has not been any fresh update on inflation, wages or employment readings.
The key element to this meeting will be how the RBNZ address the resurgence in the NZD exchange rate. The bank has regularly reaffirmed their judgement that NZD remains too strong and the recent rise will be disappointing.
