Coming Up: New Zealand Interest Rate Decision

Interest rate decisions are routinely one of the major events that most affect currencies. But despite some of the press speculation, the consensus among analysts is that the RBNZ is likely to stay the course.

Scrutiny will be on the policy statement from the decision. However, with little change expected, the kiwi could sail through with less volatility. Here’s what could happen and why.

Schedule and Expectations

The interest rate decision is the only major macro event for the day likely to affect the NZD.  The decision and the rate statement are set to be released concurrently on Thursday at 02:00 CET (which would be Wednesday at 21:00 EST). This is what is known as a “small” meeting in that there is no press conference scheduled afterward.

There is a broad consensus that the rate will stay at 1.75%. So, what we’d be looking for is a change in the language and expectations in the statement. Here are a couple of key considerations:

  • Last time, the governor said that the next move could be either up or down. If that is omitted this time, it would be seen as a return to the prior upward bias. If it’s changed, it would likely be to say that he expects the next move to be down. That will logically put the NZD under pressure.
  • Regarding the outlook for GDP growth for the remainder of the year, last time around the RBNZ affirmed their outlook of 3.0% growth. This year, a revision to the downside would also be negative for the kiwi dollar. A revision higher, on the other hand, would reflect the better data from the last quarter and be something of a surprise for the markets.

There’s No New Data

Since the last meeting of the reserve bank, there has only been one top-tier macro data release, which was GDP. So, without a wealth of new evidence to sway the bank’s view, there isn’t much to cause speculation that there will be a change in policy.

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