Trading Guide: RBNZ Statement July 2013

Another RBNZ rate decision is upon us! On Wednesday at 9:00 pm GMT, central bankers from down under will deliver their monetary policy announcement.

In its last statement, the RBNZ didn’t announce any changes to monetary policy and kept its official cash rate at its record low of 2.50%. But don’t be fooled. The lack of action from the central bank didn’t really mean that all is well in Middle Earth.

RBNZ Governor Wheeler announced downgrades to the bank’s growth forecasts. New Zealand’s growth from March 2013 to March 2014 is now just anticipated to come in at 3.0% when it was previously estimated at 3.3%. Meanwhile, its growth estimates for the following year remained steady at 2.8%.

But that’s old news! Let’s take a look at what has happened since then.
First, New Zealand’s economic growth for Q1 2013 fell short of expectations. GDP growth printed at 0.3% which is only half of what analysts had predicted. A closer look at the report reveals that expansion was slowed down by declines in the NZ’s major sectors, namely: forestry, agriculture, and fishing.

Exports also fell by 7.8% from a year ago in May which reveals that the country took a hit from the weakening of global demand. If growth in China and Australia continue to be dismal, we could see New Zealand’s trade figures take more hits down the line.

Furthermore, the 0.6% drop in credit card spending for May also suggests that the retail sector continues to lag.

Then of course, there’s the latest earthquake that hit New Zealand’s capital, Wellington. Some market junkies are worried that the disaster could convince the RBNZ to cut rates in order to help prop up growth in the city. But there are also more optimistic market watchers who argue that rebuilding efforts could actually lead to economic growth.

On a more positive note, the data released over the past few weeks revealed that business confidence has been improving significantly.

The NZIER business confidence index rose from 23 to 32 in Q2 2013, noting a nice pick-up in hiring and investing. The ANZ business confidence index showed similar optimism as it surged from 41.8 to 50.1 in June.

According to the ANZ report, confidence is up across all sectors and the overall outlook for the country remains promising. What we can take away from these reports is that even though PAST data hasn’t been very impressive, forward-looking indicators show that there is hope for a brighter future for the New Zealand economy.

Expectations and Tips

With all this new information, the RBNZ doesn’t really have a strong case to make a move of any kind, which is why it’s widely expected to keep its monetary policy guns holstered and interest rates steady at 2.50% again.

Yes, the RBNZ is one of the few central banks with a tightening bias (which is probably why its rate statements have been bullish for the Kiwi 6 out of the last 7 times). But the latest inflation figures, which revealed that CPI fell from 0.4% to 0.2% in Q2, should reduce pressure on the RBNZ to hike rates. In fact, many believe that the central bank won’t begin its tightening cycle until early 2014.

If you plan on trading this event, it would be wise to listen closely for remarks on the New Zealand dollar. Its rise has been a concern for the central bank in recent months, with the RBNZ openly admitting to secretly intervening in the markets to keep the currency grounded.

The RBNZ could be getting antsy and decide talk down the New Zealand dollar now that it’s starting to find its mojo again and recovering from its lows in early in July.