RBNZ monetary policy preview

Today Reserve Bank of New Zealand (RBNZ) will announce after meeting monetary policy decisions at 21:00 GMT.

Economic condition -

• New Zealand's economy overall remained robust throughout past years however as of recent facing headwinds due to slow down in China and Europe, two of its major importer.
   
• Dairy prices rose by 14% and 10% in previous two auctions, but prices are down close to 50% in last one year.
                                   
• GDP growth has slowed to 2.6% y/y and 0.2% on quarterly basis Unemployment still low at 5.9% but grew from recent 5.4%.
   
• As per latest survey, confidence among businesses continuing to deteriorate substantially along with inflation expectation which has hit new record low.
   
• Debt level is sustainable at close to 36% of GDP.
   
• Current account has deteriorated to -3.3% of GDP.
   
• Inflation remained subdued and grew only by 0.40% after averaging above 1.5% last year.

RBNZ stance -

• RBNZ lowered interest rates by 25 basis points each in two consecutive policy meeting to 3%, still highest among developed world.

• RBNZ has hinted that it stands ready to take further action, which would be reduction in policy rates.

Expectation and impact -

• After RBNZ comments this year, expectation is high that RBNZ will provide another 25 basis points rate cut today.
   
• Kiwi would see heavy appreciation if RBNZ keeps policy steady in today's meeting.
   
• Kiwi is currently trading at 0.638 against dollar, broken key support at 0.65, next target is around 0.56 area.
   
• If RBNZ keeps rate steady today, it would be so, only due looming rate hike from FED.
   
• A rate cut today might push Kiwi to interim support area of 0.62, however more aggressive cut of 50 basis points would push it towards 0.6 against Dollar.
   
• Strong resistance lies for Kiwi at 0.658 and 0.68 against Dollar.