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Whattup, fellas! On Wednesday at 9:00 pm GMT the Reserve Bank of New Zealand (RBNZ) will publish its monetary policies for the month of August.

What are traders expecting and how can you grab pips from the event? Here are points that might help:

Surprisingly dovish statement in June

As widely expected, the RBNZ decided to keep its interest rates steady at 1.75% for another month in June. What market players didn’t expect was that the central bank would turn a tiny bit dovish in its statement.

Recall that the central bank switched from hawkish to neutral back in May when it said that

“The direction of our next move is equally balanced, up or down. Only time and events will tell.”

However, June’s statement revealed concern for inflation that “remains below the 2 percent mid-point of our target.” BFD, since RBNZ’s plan is to combat this is “continued supportive monetary policy for some time to come.

If that wasn’t enough to drive Kiwi bulls away, Governor Orr and his team also shared that “the recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated.

The cherry on top of the not-so-sweet sundae was the RBNZ sharing that (emphasis mine):

“The best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period.

Not surprisingly, the RBNZ’s slightly dovish outlook brought the bears to the Kiwi’s yard.

NZD 1-Hour Forex Charts
NZD 1-Hour Forex Charts

No policy changes expected

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!

But also note that, aside from a presser scheduled an hour after the statement’s release, the central bank will publish a quarterly report which includes its GDP, inflation, and interest rate projections.

Some believe that the RBNZ will downgrade its growth projections this time, and possibly even push back its schedule for expecting a rate hike.

Downgraded forecasts ahead?

Remember that Q1 2018’s GDP slowed from 0.6% to 0.4% while the annualized figure (2.7%) clocked in its weakest reading in almost four years. The RBNZ had pegged 2018 growth at 3.0% back in May.

And then there’s the closely-watched NZIER Quarterly Survey of Business Opinion (QSBO).

The report showed that more participants expect a deterioration of economic conditions in Q2 2018 as lower profitability and downbeat sentiment affected hiring and investment plans. In fact, it even detailed that the surveys “point to softer economic growth in the second half of 2018.” Yipes!

That doesn’t mean that the RBNZ will turn dovish, however. The unemployment rate might have inched higher from 4.4% to 4.5% in Q1 2018, but that’s mostly because labor participation rate also edged 0.1% higher to 70.9%.

Analysts are also quick to point that the sectoral factor model in the latest CPI report – RBNZ’s preferred core inflation gauge – showed a 1.7% annualized increase in Q2 after rising by 1.6% in Q1.

So, it looks like the RBNZ is dealing with a mixed bag of nuts. While an improving labor market and steady inflation are reasons to celebrate, weaknesses in growth and business confidence (and their downside risks to job and inflation) should keep the central bank on its toes.

This is why we’ll most likely see more of the RBNZ’s neutral to slightly dovish sentiments this week.