The Reserve Bank of New Zealand is set to make its interest rate statement this week and this might be one of the most market-moving economic events among those lined up. The central bank is widely expected to hike rates by 0.25% again, marking their fourth consecutive tightening move this year.
Data from New Zealand has been relatively strong, but there’s no denying that the economy has started showing its fair share of weaknesses. For one, dairy volumes and prices have declined again during the latest auction, sparking concerns that commodity price inflation will slow down. On top of that, the latest GDP reading turned out weaker than expected. Jobs growth has been impressive though, and this might lead to more domestic spending gains for the country.
RBNZ Rate Statement Scenarios
Another round of hawkish comments from RBNZ head Wheeler could lead to more forex gains for the Kiwi, but cautious remarks could convince traders that this might be the last of the RBNZ rate hikes for the year. A quick review of the impact of the latest rate hikes on the NZD/USD currency pair though shows that the rally has lasted longer each time.
This is probably because the positive interest rate differential between the New Zealand dollar and the US dollar has grown enough to encourage more traders to take advantage of carry trade. Bear in mind that the Fed is not looking to hike interest rates anytime soon.
If Wheeler decides to focus on the persistent risks of the New Zealand economy, the Kiwi might be forced to return some of its recent gains. Bear in mind that several geopolitical tensions are dominating the airwaves these days, leading to lower appetite for riskier and higher-yielding currencies.
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