Whattup, forex brothas! On Wednesday at 9:00 pm GMT the Reserve Bank of New Zealand (RBNZ) will publish its monetary policies for the month of June.
What are traders expecting and how can you grab pips from the event? Here are points that might help:
RBNZ dragged on NZD in May
- OCR maintained at 1.75% as expected
- Downgrades to some growth and CPI projections
- Delay in rate hike estimates
- Shift to neutral bias
- NZD tanked
The RBNZ kept its interest rates steady at 1.75% for another month in May. But since everyone and his momma expected the decision, attention turned to what Governor Adrian Orr and his gang had to say about the economy and their forward guidance.
And it didn’t look pretty. For starters, the central bank downgraded its CPI and growth projections in some months all the way up to 2021.
It also didn’t help that RBNZ is now projecting a rate hike on September 2019 at the earliest, a full quarter later than its projections back in February.
The straw that broke the camel’s (or in this case the bulls’) back is Governor Orr and his team shifting from a relatively hawkish to a neutral stance. In their statement they noted that:
“A higher OCR risks there being insufficient demand to generate a sustained pick-up in inflation towards the target mid-point…”
BFD since the RBNZ already highlighted its concerns over low inflation, saying that it remains below the 2.0% target mid-point due to “recent low food and import price inflation, and subdued wage pressures.”
The central bank isn’t switching to a dovish bias, however. It also qualified that:
“A further reduction in the OCR, to return inflation to the target mid-point more quickly, risks creating unnecessary volatility in output, employment, and interest rates.”
Overall, the policymaking team concluded that:
“The risks around the OCR projection are broadly balanced.”
The shift in RBNZ’s stance took markets by surprise, which is why it was easy for the bears to attack and drag the Kiwi to new weekly lows for most of the trading day.
New mandate defined
Recall that Finance Minister Grant Robinson shook hands with Orr to add “maximum levels of sustainable employment” under the new Policy Targets Agreement back in March.Well, it seems like the central bank is starting to define what “maximum sustainable employment” means.
In its statement the RBNZ noted that “[m]aximum sustainable employment is not given a specific numerical target,” adding that factors such as “unemployment, underemployment, flows in and out of the labour market, participation, trends in hours worked, and wage growth” also need to be considered.
Orr and his team gave themselves some leeway, though, by saying that “the Bank’s understanding of maximum sustainable employment will likely evolve.”
No changes expected this time
Market chatter tells us that analysts aren’t expecting policy changes this week. Heck, the RBNZ itself isn’t expecting any movement until September 2019!
And then there’s the string of disappointing data that came out of New Zealand recently. The Q1 GDP miss, for example, still weighed on the Kiwi despite its lagging nature. Weaker price pressures and falling business sentiment also don’t help the rate hike junkies’ cause.
Last but definitely not the least is the increase in protectionism headlines from the U.S. and its major trading counterparts, which threatens the RBNZ’s upbeat global growth outlook.
Does this mean that we won’t see movement from the Kiwi? Not necessarily.
Remember that this month will be Orr’s second policy-making month since sitting as head honcho. If Orr decides to edit a few words from May’s statement and call it a day, then we might see limited volatility for the Kiwi.
But if he takes his transparency to the next level and give us a completely new format, then we might see a decent wiggle or two from the comdoll.
Make sure you stick around during the event to catch any volatility coming our way. Of course, you could also stay in the sidelines if news trading is not your thing.