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

Early Wednesday at 02:00 GMT market sees the monetary policy decision by the Reserve Bank of New Zealand (RBNZ). With the surprise negative from the Delta covid variant outbreak in New Zealand (NZ) challenging the previously anticipated RBNZ rate hike, today’s meeting becomes the key for the NZD/USD traders.

It’s worth noting that the national lockdown also challenges the RBNZ to become the first major central bank to announce a rate hike and overcome the pandemic-led woes.

Even so, market consensus favors a 0.25% hike in the benchmark interest rate, currently at 0.25%, but no major adjustments to the Large Scale Asset Purchases (LSAP) during today’s monetary policy meeting. The forward guidance, however, will be the key as some on the floor expect a six-week pause for the hawkish play.

Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,

We think it makes sense for the Bank to react to the known (an overheated economy) and state they are ready to adapt to new info as it comes to hand. In 'least regrets' terms, neither a short-lived hike in the worst-case scenario, or a six-week delay to hiking in the best-case scenario, would be a particularly big deal for the economy – it’s much more important than the health and fiscal policy responses are exactly on the mark. It’s a tough decision for the RBNZ today, but the PM faces tougher ones.

Also joining the bull’s league is Westpac that said,

Regardless of the economic case for higher interest rates, there is nothing to be gained from pushing the OCR higher now, rather than waiting for more clarity on the Covid situation. On 17th August, a case of Covid-19 in the community was announced. In response, the government announced that New Zealand would move to Level 4 (the strictest Covid alert level) for seven days in the Auckland and Coromandel regions, and three days in the rest of the country.

How could it affect NZD/USD?

NZD/USD pares early Asian corrective pullback near the monthly low surrounding 0.6910 by the press time of pre-RBNZ. In doing so, the Kiwi pair justifies the latest news that four covid cases linked to the first one in Auckland were found, suggesting extended national lockdown. The same challenges the RBNZ policymakers’ previously hawkish tone and odds of the rate hike.

Hence, NZD/USD prices can extend the weakness and refresh the yearly low should the RBNZ pauses before the rate hike. On the contrary, an upside change to the benchmark rate is widely anticipated and hence the same outcome may offer a knee-jerk reaction before recalling the bears on the covid woes. Hence, the NZD/USD bears have an upper hand even if the RBNZ chooses to hike the rates. However, it all depends upon how well the policymakers consider the risk of the virus outbreak versus the escalating price pressure.

Ahead of the release, FXStreet’s Dhwani Mehta says, “A hawkish surprise by the NZ central, shrugging off the virus concerns while maintaining its July rhetoric, could save the day for the NZD bulls. For a meaningful recovery, the currency pair has to decisively recapture the horizontal 200-Simple Moving Average (DMA) at 0.6995. Further up, stiff resistance awaits around 0.7010, the confluence of the 21, 50 and 100 averages.”

Keynotes

NZD/USD consolidates biggest daily fall since June above 0.6900 with eyes on RBNZ

Reserve Bank of New Zealand Preview: To hike or not to hike amid fresh covid lockdown

About the RBNZ interest rate decision and rate 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.