The RBNZ is slated to print its policy decision this week! Will it maintain its not-so-hawkish vibes for another month?
RBNZ statement (June 27, 9:00 pm GMT)
The Reserve Bank of New Zealand (RBNZ) might have maintained its policies last month, but the Kiwi still ended up falling sharply after the event.
For starters, Governor Orr and his team downgraded their growth and inflation forecasts for 2018 and 2019. On top of that, they also moved back their tightening schedule by a quarter to Q3 2019.
The cherry on top is the team shedding its hawkish bias in favor of a more neutral one, saying that:
“The direction of our next move is equally balanced, up or down. Only time and events will tell.”
Apparently, the RBNZ is worried about low inflation and wage growth even as they lauded “an unprecedented increase in employment.” Talk about a triple threat!
This week analysts are expecting the RBNZ to keep its OCR steady at 1.75% for another month. There won’t be a presser following the statement, however, so keep your eyes peeled for shifts in policy biases to see if they would influence the Kiwi’s volatility!
Overall risk sentiment
As you can see below, the Kiwi’s price action mostly depended on the market’s risk appetite. Investors focused on the trade war between the U.S. and China, which could affect activity for exporting countries like New Zealand.
Keep an eye out for escalating threats between Washington and Beijing this week. Tariffs on $50 billion worth of goods are expected to go live on July 6 unless the two parties end up de-escalating the situation. Meanwhile, talks of additional tariffs could further weigh on the Kiwi.
Last Week’s Price Review
The Kiwi is currently the second biggest loser of the week after two weeks of being a net winner (as of 7:00 am GMT).
The higher-yielding Kiwi also had poor start, thanks to the risk-off vibes on Monday. Most Kiwi pairs didn’t seem to mind Trump’s threat to impose even more tariffs against China, though.However, the resulting vibes because of the escalating trade spat did pull the Kiwi broadly lower.
Also, the Kiwi was likely under pressure when the Greenback strengthened after Former U.S. Treasury Secretary Lawrence Summers said in an interview that:
“Trade war is not likely to be large enough that its direct effects damage the economy profoundly.”
And while the Kiwi didn’t have a uniform reaction to Trump’s tariff threats, the Kiwi apparently began to recover after Chinese Foreign Ministry Spokesperson Yan Shuang stressed during a presser that “China does not want to fight a trade war.”
Also, Yan Shuang implied that China is reluctant to escalate the trade spat with the U.S. even further when he merely said the following after being asked about Trump’s tariff threats:
“[W]e advise the United States to return to rationality and stop deceitful actions against others.”
It also likely helped that risk sentiment was beginning to improve during the later sessions.
Unfortunately for the higher-yielding Kiwi, risk aversion begin to make a comeback by Wednesday’s London session, forcing the Kiwi to resume its slide.
Risk appetite briefly returned during Thursday’s Asian session, though, which likely helped the Kiwi to resist selling pressure due to New Zealand’s uninspiring GDP report.
Sellers did eventually win out, though. And things only got worse for the Kiwi since risk aversion returned during Thursday’s London session.
Signs of returning risk appetite began to show during Friday’s Asian session. And that plus weakness on the part of the Greenback likely helped the Kiwi to recover some lost ground. The damage was already done, however, so the Kiwi’s on track to closing out the week on the losing side.