The RBNZ is set to publish its decision this week! Will it push the Kiwi back to its 2018 highs? Here are this week’s potential catalysts.
Inflation expectations (Tuesday, 3:00 am GMT)
Back in February business managers shared that they’re expecting inflation to come in at around 2.1% in the next few years. This was better than the 2.0% reading that they gave in Q4, so Kiwi bulls cheered at the news.
Will business managers feel as confident over consumer price increases in Q2 2018? Remember that Reserve Bank of New Zealand (RBNZ) Assistant Governor John McDermott shared that:
“We are very sensitive to inflation expectations, more so than in the past because businesses are more sensitive to current inflation.”
Make sure you pay attention to the release and take advantage of intraday price action when you see one!
RBNZ’s policy decision (Wednesday, 9:00 pm GMT)
Back in March the Reserve Bank of New Zealand (RBNZ) kept its rates at 1.75% as many had expected.
The central bank acknowledged that global growth outlook continued to improve, but cautioned that global inflation estimates remain subdued.
It also nodded to recognized that weather had dragged on overall growth, and that inflation could weaken in the short-term due to “adjustments to government changes” and “softness in food and energy prices.”
March’s decision marked the last for acting Governor Grant Spencer, who was shortly replaced by Adrian Orr in late March.
This week Orr will make his first post-decision presser. What makes it more interesting is that this will also be the first decision after the RBNZ adopted “sustainable maximum employment” as a mandate.
Think Orr will start his policymaking decisions with a bang?
Last Week’s Price Review
Like the Aussie, the Kiwi is also currently on course to closing out the week on a mixed note (as of 7:00 am GMT). And like the Aussie, NZD pairs also had roughly uniform price action.
The Kiwi started the week on a weak footing, even though risk appetite was the prevalent sentiment in Asia. And based on price action, it looks like the Kiwi got kicked broadly lower after ANZ’s Business Outlook Survey revealed that business confidence in New Zealand dropped from -20.0 to -23.4.
Risk-taking persisted in the morning London session, but the Kiwi only extended its losses. There were no fresh catalysts, but I noted in my London session recap that the Kiwi was likely on the back foot because we’re seeing an extension of last week’s themes, namely the Kiwi’s vulnerability to Greenback strength due to monetary policy divergence between the Fed and the RBNZ, as well as the higher bond yields weakening the Kiwi’s yield advantage.
Anyhow, the Kiwi’s weakness during Monday’s U.S. session made more sense since risk aversion made a comeback at the time. Although persistent Greenback strength also likely helped to slap the Kiwi around.
Risk appetite returned on Tuesday, which likely allowed the Kiwi to fight back against another bout of Greenback strength since most NZD pairs ended up trading sideways while tilting slightly to the upside.
Oddly enough, the Kiwi began to find support against the dollar after the latest dairy auction resulted in the GDT price index falling by 1.1%. However, that likely had more to do with the Greenback’s rally stalling after ISM’s manufacturing PMI failed to impress.
Moving on, the Kiwi tossed and turned after New Zealand’s jobs report was released. And as highlighted in Wednesday’s Asian session recap, this was likely due to the jobs report presenting a mixed picture since the jobless rate was the lowest since Q4 2008 but wage growth remained anemic.
After that, the Kiwi apparently took directional cues mainly from the Greenback, becoming an anti-dollar essentially.
The Kiwi, for example, had a good run on Thursday even though risk aversion was the prevalent sentiment. The Greenback was showing mostly weakness in the wake of the FOMC statement, though, and the Kiwi was likely taking advantage of that.
Friday is another good example since risk appetite was the more dominant sentiment by then, but the Kiwi dipped as the Greenback regained some poise ahead of the NFP report.