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FxWirePro: RBNZ likely to boost USD with dovish comments at tomorrow’s meeting

 

Tomorrow Reserve Bank of New Zealand (RBNZ) will announce its monetary policy at 1:00 GMT, followed by a press conference at 2:00 GMT. Over the past 4 years or so, RBNZ has reduced rates from 3.5 percent to 1.75 percent, which is an all-time low, however, the bank is unlikely to push a lot further, though it has some more room to do so since it has indicated in the recent past that RBNZ would follow a slower path to monetary policy, a change is unlikely.

RBNZ is likely to play it cautious, as the inflation rose last year across the world, along with a recovery in commodity prices but recently lost some momentum since 2018. In addition to that, when major central banks are planning to wind up these extraordinary stimulus measures, RBNZ is not likely to stand out with additional easing.

As RBNZ would not like to fuel the Kiwi dollar higher, we expect the commentaries to remain dovish for now, which would push the USD higher.

Let’s see how the economy and inflation has been doing in the recent past,

  • After remaining at 0.4 percent in the first three quarters, inflation rose to 1.3 percent in the fourth quarter of 2016 and it rose further to 2.2 percent in the first quarter of 2017. However, it has declined to 1.7 percent in the second quarter, only to rise to 1.9 percent in the third. Inflation was 1.6 percent in the fourth quarter of 2017. Inflation declined further to 1.1 percent in the first quarter of 2018, only to jump to 1.5 percent y/y in the second quarter. It rose further to finish the year at 1.9 percent inflation.
     
  • After reaching 4.1 percent y/y growth in the final quarter of 2016, the annual growth rate has gradually declined to 2.6 percent as of the third quarter of 2018.
     
  • The unemployment rate is low at 4.3 percent but further improvements may take place if GDP growth accelerates.
     
  • Dairy farmers are suffering from costlier kiwi dollar.    However, in 2019, the dairy price is showing strength.
     
  • Biggest risk remains speculations in the housing market but RBNZ admitted that addressing the issue using regulations is definitely much effective than the interest rate. At least, the experience from Australia’s housing market suggests so. Emerging market slowdown could also play a vital role.

A press conference is scheduled after RBNZ decision at 2:00 GMT.

We expect the commentaries to remain dovish as RBNZ is very likely to follow Reserve Bank of Australia’s (RBA) guidance that rates could move on either side depending on economic condition.

 

 

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