- The Reserve Bank of New Zealand is set to maintain its key interest rate at 5.50% on Wednesday.
- The August policy decision appears to be a “close call” between a hold and a cut, as inflation expectations fall.
- The New Zealand Dollar’s fate hinges on the RBNZ policy action, updated forecasts and Governor Orr’s words.
Market participants are eagerly awaiting the Reserve Bank of New Zealand (RBNZ) interest rate decision, due on Wednesday at 02:00 GMT, as it is expected to be a “close call” for the central bank.
The RBNZ is expected to hold the Official Cash Rate (OCR) at 5.50%, maintaining that level since May 2023. However, the market is heavily divided, with analysts and industry experts anticipating a rates on-hold decision. A Reuters poll of 31 analysts, found 12 predicting a cut with the rest supporting the status quo.
On the other hand, swap markets imply a roughly 70% probability of the bank lowering the cash rate by 25 basis points (bps) to 5.25%. Markets are pricing in 90 bps of easing this year and another 148 basis points in 2025.
What to expect from the RBNZ interest rate decision?
Markets leaned in favor of a dovish policy pivot by the RBNZ after the central bank’s quarterly survey showed a continued drop in inflation expectations.
New Zealand's inflation expectations fell to three-year lows of 2.03% in the third quarter, compared to 2.33% in the June quarter. Meanwhile, the survey data from 33 business leaders and professional forecasters saw annual price increases averaging 2.40% over the year ahead, down from 2.73% previously.
However, some of the other fxstreet.com/economic-calendar" data-fxs-autoanchor="">economic indicators suggest that the RBNZ could extend the pause. Non-tradable inflation continues to be a concern for the central bank, as domestic inflation remains stubbornly high. Non-tradeable inflation was 5.4% in the year to the June quarter, declining from the 5.8% print in the second quarter, although still above the 5.0% level.
The country’s labor market still showed some signs of tightness after the Employment Change rebounded by 0.4% in the second quarter, up from a 0.2% decline in Q1 and way above the market estimate of a 0.2% fall. The Unemployment Rate rose from 4.4% to 4.6%, lower than the expected 4.7% figure.
Additionally, New Zealand’s ANZ Business Confidence Index jumped to 27.1 in July from 6.1 in June, showing improving firms’ morale.
As the market remains split on the likely RBNZ policy move this week, traders will pay close attention to the language of the Monetary Policy Statement (MPS) and the updated economic projections for fresh hints on the bank’s outlook on interest rates.
How will the RBNZ interest decision impact the New Zealand Dollar?
The main focus will be on the RBNZ’s OCR forecasts and a downward revision to it for this year could reverberate the market's expectations of a rate cut by the RBNZ earlier than previously projected in the third quarter of 2025. The RBNZ currently forecasts the OCR to peak at 5.65% in Q4 2024.
The New Zealand Dollar (NZD) will be thrown under the bus if the central bank cuts the rate by 25 bps to 5.25% while revising down its OCR forecast for 2024. In such a scenario, NZD/USD could revisit the nine-month low of 0.5900.
In case the central bank holds the rate, any dovish tweak in the policy statement and a potential downward revision to the OCR projections could overshadow and act as a headwind for the Kiwi Dollar.
NZD/USD could extend its recovery momentum only if the MPS expresses concerns over sticky non-tradeable goods and services inflation and acknowledges upside risks to inflation, delivering a hawkish hold outcome. The New Zealand Dollar could also benefit should the bank retain its hawkish bias while maintaining the OCR estimates.
Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the New Zealand Dollar on the RBNZ policy announcements: “The NZD/USD pair is consolidating the previous week’s recovery, capitalizing on a bullish 14-day Relative Strength Index (RSI) on the daily chart.”
“If buyers manage to find acceptance above the key 200-day Simple Moving Average (SMA) at 0.6087, the upside will open up toward the July high of 0.6154. Further up, the 0.6200 threshold will be in sight. Conversely, failure to defend the 21-day SMA at 0.5974 could fuel a fresh downtrend toward the 0.5900 level, below which the April low at 0.5852 will get tested,” Dhwani adds.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD refreshes multi-week top as focus now turns to US CPI
AUD/USD climbed to over a three-week high during the Asian session on Wednesday. A softer-than-expected US PPI report supported prospects for deeper Fed rate cuts and dragged the USD to over a one-week low on Tuesday. This, along with the RBA's hawkish stance and the risk-on mood, continues to underpin the Aussie ahead of US CPI later today.
NZD/USD remains strong, with all eyes on RBNZ rate decision
The New Zealand Dollar extends the rally on the weaker Greenback on Wednesday. Further optimism in the risk sentiment has maintained the US Dollar under pressure in the previous sessions and created a tailwind for the pair. The signs of stronger demand from China also underpin the Kiwi.
Gold holds above $2,450 ahead of US CPI data
Gold price trades with mild gains near $2,465 during the early Asian session on Wednesday. The upside of the yellow metal might be underpinned by the safe-haven flows amid ongoing tensions in the Middle East. Traders will closely watch the release of the US July CPI, which is due later on Wednesday.
Bitcoin shows signs of recovery as Bitgo begins final Mt. Gox distribution
Bitcoin is up over 3% on Tuesday as investors reacted positively to the final lap of Mt. Gox supply pressure. Meanwhile, Glassnode data reveals investors have resumed accumulation, hoping to see Bitcoin record higher prices.
RBNZ expected to keep key interest rate unchanged amid increasing rate-cut talk
The Reserve Bank of New Zealand is set to maintain its key interest rate at 5.50% on Wednesday. The August policy decision appears to be a “close call” between a hold and a cut, as inflation expectations fall. The New Zealand Dollar’s fate hinges on the RBNZ policy action, updated forecasts and Governor Orr’s words.