When is the RBNZ and how might it affect NZD/USD?

RBNZ overview

The RBNZ is expected to leave the Official Cash Rate (OCR) at 1.75% at its policy meeting today which might just pluck a few more feather's from the bird's tail. Analysts at TD Securities, (TD and unanimous consensus expects the OCR to remain at 1.75%), explained that since the 9 August Monetary Policy Statement, activity has been upbeat - especially Q2 GDP growing at twice the rate the Bank expected - but they expect Governor Orr to emphasise that inflation remains persistently low, and weak business sentiment is the main downside risk to the outlook.

However, they noted that the ANZ business survey saw a pickup in own activity from +4 to +8, and confidence rose from -50 to -38 (chart p2, right). "The own activity pickup was led by exports (+8 to +19) but employment still negative at -1 (although from -6) and investment deteriorated from -5 to -9. We suspect that Orr will focus on the latter when justifying his dovish stance."

"We expect the tone to reflect that the Governor will "wait, watch and worry", where the next move in the cash rate could be “up or down” as per the August policy assessment. We also expect a repeat where “we expect to keep the OCR at this level ... into 2020”. Dropping this latter statement would be undeniably hawkish, and is highly unlikely. Some reduction in the global risk premium is expected to benefit currencies such as the NZD. And as the kiwi is at our high-frequency fair value, we favour a squeeze in positioning and continue to look for a push towards $US0.68 in the immediate future. Governor Orr will ensure that this will not occur in a straight line."

How could the RBNZ affect NZD/USD? 

The outcome of today's RBNZ could see a deeper correction in the bird and send it en-route for an extension to the downside and back towards the territory below the prior trend resistance if Orr voices his concerns about low inflation and the business investment strike. "The kiwi has been the worst performing G10 currency over the past three months, dropping over 3%. This reflects a mix of both internal and external headwinds, though we think the backdrop should start to improve," the analysts at TD Securities argued:

"It is a tactical view but we think both AUD and NZD should outperform CAD (for example) over the next few weeks. The economy is in good shape and a rate cut is unnecessary, while the external risk premium could start to fade. That really boils down to the fact that a lot of bad news is already well-priced into the currency (also the case for other high-beta G10 currencies). Against our HFFV gauge, NZDUSD is trading near short-term fair value."

Key notes:

RBNZ Preview: to remain in wait-and-see mode

About the RBNZ interest decision and statement

The RBNZ interest rate decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the NZD. The RBNZ rate statement contains the explanations of their decision on interest rates and commentary about the economic conditions that influenced their decision.