Early Wednesday at 01:00 GMT market sees monetary policy decision by the Reserve Bank of New Zealand (RBNZ). Also increasing the importance of the event is the quarterly release of the RBNZ Rate Statement, to be followed by Governor Adrian Orr’s speech at 02:00 GMT. Considering the recently downbeat inflation expectations from the central bank, markets anticipate a 25 basis points (bps) cut to the Official Cash Rate (OCR) of 1.0%.

Rate cut or surprise?

While RBNZ policymakers and those occupying the New Zealand Institute of Economic Research’s (NZIER) ‘shadow’ monetary policy board have stopped supporting further rate cuts after a mid-year reduction of 0.50%, the New Zealand central bank is famous for surprises. As a result, Kiwi traders are all waiting for the RBNZ’s rate decision considering the recent weakness in the domestic data and the policymakers’ refrain from bearish bias.

Ahead of the event, Westpac reiterated the latest change in the forecast, from no rate cut to 0.25% reduction while saying,

Westpac regards the RBNZ policy decision (12 pm Syd/9 am Sing/HK) as a very close call but we now lean slightly towards a cut to 0.75%. If the RBNZ does cut, we would expect no explicit signal of future follow-up cuts, similar to the May and August MPSs. We would expect the OCR forecast to be around 0.75%, again not signaling any intent to cut again. However, the RBNZ should remain open to the possibility of further cuts with a phrase like “There is scope for further fiscal and monetary easing if necessary.” Governor Orr will deliver a press conference an hour after the release.

On the contrary, analysts at the TD Securities term today’s RBNZ rate decision as a line ball call,

RBNZ rate decision – this is a line ball call. The RBNZ, the RBA and the Fed have each cut 75bps this year with the Fed and the RBA indicating moving to the sidelines as the more prudent strategy. With trade headlines improving, the NZ TWI well below Aug MPS forecasts and data suggesting stabilization, the Bank can afford to take a patient approach and assess the data following the 50bps Aug cut.

Impact on NZD/USD

While the recent pessimism surrounding the trade deal between the United States (US) and China weigh on Antipodeans, weakness in the domestic fundamentals also increases the odds of the central bank’s rate cut. With this, the Kiwi pair can extend its latest weakness while looking for fresh clues from the quarterly economic assessment and Governor Orr’s speech.

Technically, the bearish signal from 12-bar moving average convergence and divergence (MACD) and sustained trading below the key exponential moving averages (EMA) portray underlying weakness in the pair’s trading sentiment. As a result, sellers will for a test to the six-week-old rising trend line, at 0.6305 now, ahead of targeting mid-October bottom near 0.6240 and 0.6200 round-figure. However, an upside clearance of 50-day EMA level of 0.6370 could trigger pair’s recovery to 100-day EMA level of 0.6430 and monthly top surrounding 0.6470.

Keynotes

NZD/USD: Under pressure ahead of RBNZ rate decision

About the RBNZ interest rate decision and rate statement

The RBNZ interest rate decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the NZD. The RBNZ rate statement contains the explanations of their decision on interest rates and commentary about the economic conditions that influenced their decision.

About RBNZ monetary policy statement

The New Zealand Reserve Bank publishes its Monetary Policy Statement (MPS) quarterly. Each Monetary Policy Statement must set out: how the Reserve Bank proposes to achieve its targets; how it proposes to formulate and implement monetary policy during the next five years; and how monetary policy has been implemented since the last Monetary Policy Statement.