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New Zealand Dollar May Rise as RBNZ Opts to Keep Rates on Hold

New Zealand Dollar May Rise as RBNZ Opts to Keep Rates on Hold

2012-12-05 18:16:00
David de Ferranti, Currency Analyst
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THE TAKEAWAY: The New Zealand Dollar may rise as the RBNZ opts to keep interest rates on hold despite a string of weaker economic data as inflation expectations hold on-target.

The RBNZ is widely expected to keep rates on hold at tomorrow’s policy meeting, with swaps markets pricing in only a 15% chance of a 25 basis point cut. Forex traders will be looking at the commentary from Reserve Bank Governor Wheeler as to whether there may be some scope for easing in 2013. A surprise cut or particularly dovish comments are likely to be negative for the New Zealand Dollar. However, with inflation expectations near the midpoint of the Bank’s 1-3 percent target range, we are unlikely to see hints of monetary easing in the near term. On balance, this is likely to be supportive for the Kiwi.

NZD/USD rallied following the central bank’s October decision to keep rates on hold at 2.5%. While the policy statement appeared to carry no rhetoric overtly supporting the case for added stimulus in the immediate term, a string of worse-than-expected economic data since then has raised the possibility the central bank may be compelled to act. Notably, unemployment hit the highest level in over a decade at 7.3% for the June quarter.

However, the Bank’s focus on medium-term inflation trends (over a period of about 2-3 years forward) means they are unlikely to be driven to action as long as price-growth expectations remain reasonably anchored. The latest reading from the RBNZ’s own two-year inflation outlook gauge printed at 2.3 percent, pointing to a lack of urgency on monetary stimulus.

AUDNZD – Daily Chart

Prices are consolidating above rising channel support set from October’s swing low, now at 1.2668. A close below that is needed for confirmation of a downward reversal. The first major layer of near-term resistance is at 1.2770, marked by the 23.6% Fibonacci expansion.

New_Zealand_Dollar_May_Rise_as_RBNZ_Opts_to_Keep_Rates_on_Hold_body_Picture_5.png, New Zealand Dollar May Rise as RBNZ Opts to Keep Rates on Hold

Created using FXCM Marketscope - Prepared by David de Ferranti

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