Strong NZD is making matters more complicated for RBNZ

Reserve Bank of New Zealand will announce its rate decision early tomorrow followed by a press conference of the RBNZ Governor Wheeler. No changes are expected for now as the general picture of the economy looks brighter than in January.

Growth in Q3 2015 was decent, the unemployment rate recorded a notable fall of 0.7 percentage points to 5.3% and the sentiment indicators have risen notably recently. Even though depressed growth outlook in China and the renewed fall in milk price in 2016 pose risks for the New Zealand economy - there is a lack of hard data to prove that these risks will materialise.

That said, since RBNZ's January meeting NZD-USD has continuously appreciated. As a result the downward risks for inflation that had notably disappointed in Q4, are increasing. The Kiwi may gain further as RBNZ seen keeping OCR at 2.5%, underpinning the attractiveness of the country's yields as banks elsewhere move to negative rates, something the RBNZ will be wary of.