Release: RBNZ Interest Rate Decision Consensus Forecast: 2.5% Previous: 2.5% Date/Time: 03/07/12 3:00 PM ET (20:00 GMT)
RBNZ Decision Important For New Forecasts
While the general consensus is that the RBNZ will not be changing interest rates in its upcoming meeting, this risk event is still important for the forecasts that the RBNZ will put forward - the latest update since December.
Generally conditions have improved since December, as the ECB's actions have arrested the contagion in the European financial system and the US continues to post strong growth. However, for New Zealand the keys to growth from external forces will depend on Australia, which saw its economy post a weaker than expected 0.4% quarterly growth. Also crucial will be China which this week hurt risk sentiment and weakened commodities with its announcement that it would target GDP growth of 7.5% for 2012.
The interbank market is looking at the RBNZ hiking rates by around 25 basis points in the next year, with our expectation that any rate hikes may come in the 1Q of 2012.
That is an improvement since January, and puts the RBNZ in the lead in terms of developed nations that will raise rates next.
Still, there are some signs to temper optimism over the RBNZ.
First off, inflation expectations have cooled of late, which gives the bank more scope to hold rates steady if needed.
From Sharechat: Companies have trimmed their expectations for inflation over the next two years, cutting their one-year expectation to 2.24 percent, from 2.7 percent before Christmas, and their two-year expectation to 2.2 percent from 2.82 percent.
At the same time, some of the NZIER shadow board which is made up of chief economists at the main banks, academics, lobbyists and company executives and gives its recommendation prior to the RBNZ decision, has some that want to see the RBNZ lower rates.
Keeping the OCR unchanged at 2.5 percent got a 68 percent weighting, well above the next most-popular, a cut to 2.25 percent, with a 16 percent weighting. Support for an OCR of 2 percent garnered a 10 percent weighting while a 25 basis point increase to 2.75 percent attracted just 5 percent.
Examining the AUD/NZD - A Chance For Further Downswing in Positive RBNZ Scenario
If the RBNZ forecasts for growth and inflation show the central bank more upbeat on the economic outlook, then its possible that the Kiwi can strengthen following the release, especially against the Australian Dollar, as that takes away most of the other factors that revolve around the USD or EUR.
Even prior to the release the AUD/NZD was breaking down after the poor Aussie GDP.
A break of the 61.8% retracement (1.29) of the most recent rally would open further downside risk in this pair to 1.2860 and the 100% retracement at near 1.28, which would be our lows from February 29th.
We would be looking for a positive tone from the RBNZ to help push this pair lower. If however, the RBNZ pushes off expectations of rate hikes, and even hints at rate cuts if needed, that would undermine the most recent bout of NZD strength and give the AUD/NZD a chance to bounce up off its 200-hourly EMA and head back towards its highs set earlier in the week, making this bounce down to 61.8% a place to launch more longs in this pair.
In the daily view of the AUD/NZD we see that the medium term has seen generally bearish through January and February, with a move in favor of the Aussie only in the last 2 weeks. However after testing an old level of support turned to resistance at 1.3055, we could be seeing the reversal back towards the medium term if the expectations for the RBNZ to hike rates is met by increased expectation that the RBA may lower rates yet again this year. A push back towards 1.2765 would be feasible if we get some stronger language from the RBNZ.
For a technical analysis look at the NZD/USD pair see today's update: NZD/USD in a Pullback After Sharp Bearish Breakout; Where Can we Fade the Rally?
We will be reviewing the impact of this release on various NZD crosses in our daily Market Intelligence Briefing. Don't miss the opportunity to get in on the deep introductory rate offer. Click here to find out more.
Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.